8 Mar 2013
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Firms may be caught out by late payment ban

A leading construction lawyer has warned that the low key introduction of new EU-wide laws next week, banning late payments in public sector contracts, could catch out many firms in the sector.

The Late Payment Directive requires public authorities to pay their suppliers within 30 calendar days of receipt of an undisputed invoice, matching the UK government’s standard practice. It comes into force on 16 March. The directive introduces time limits for payments and sets compensation in the event that payment is late.

Writing in the firm’s own e-newsletter www.out-law.com Pinsent Masons infrastructure law expert Chris Hallam said that the quick turnaround on the new UK regulations left businesses with little time to prepare for the changes.

“With the threat of a triple-dip recession looming, the new legislation will certainly be welcomed by the construction industry in general, and particularly by those who typically sit further down the supply chain,” he said.

“However, one suspects that the industry will be somewhat caught out by these new requirements given that the regulations only came into being a couple of weeks ago – yet will be in force next week, and without much of a fanfare.

“The payment provisions in contract terms and conditions will need to be reviewed to ensure that they meet the new regulations. This may not be a particularly easy task, given that construction contracts typically provide for payment on the basis of interim valuations or stage payments whereas the regulations are geared around matters such as the delivery of goods or services,” added Hallam.

Regulations implementing the directive’s requirements in the UK were published at the end of last month. Payment terms for business-to-business payments as fixed in the contract cannot exceed 60 days unless otherwise expressly agreed, provided that the terms are not “grossly unfair”. Under the directive, the 60-day limit also applies where a public authority is carrying out “economic activities of an industrial or commercial nature” by offering goods and services on the market. However, the UK has opted to keep the limit at 30 days for this type of contract.

Commercial law expert Ruth Andrew, also of Pinsent Masons, pointed out that the concept of “grossly unfair”, which was copied from the directive into the UK regulations, was not one normally in use in the UK. It would be up to the courts to decide how to interpret the phrase in the event of a dispute, she said.

“These changes provide another useful tool for suppliers to ensure prompt payment in a tough economic climate, particularly the restrictions on agreeing extended periods during which no interest is payable,” she said.

The government also announced this week that the number of large companies that have made a public commitment to paying their suppliers promptly has tripled since November 2012.

Carillion and Laing O’Rourke have signed up to the government’s prompt payment code just weeks ahead of the government naming and shaming firms, reported Construction Enquirer.

The rush to join other signed-up major contractors came after construction minister Michael Fallon warned last November he would name and shame leading companies not signed up to the voluntary payment code. Major contracting names still to join include Costain, Galliford Try, BAM, Vinci, Wates and ISG. Berkeley Group is the only stock market quoted volume house builder to sign up to PPC.

Barratt Developments, Bellway, Bovis Homes, Galliford Try, Redrow and Taylor Wimpey are all named and shamed in official lists, says Construction Enquirer.