Commercial Payments Bill [HL]

Lord Lansley Excerpts

Committee stage
Tuesday 21st July 2026 Lords Chamber

[Lord Lansley (Con)]

The Minister is changing the Procurement Act with this Bill. The power to reduce the payment term to below 30 days was in the Procurement Act. It is being renewed here and extended to construction contracts. In the Procurement Act provision, the period was 30 days or later if the invoice had a due date that was later. I think that is being removed. I am not entirely sure why, if public authorities receive an invoice from a supplier that has a due date later than 30 days, they would not be able to extend it beyond 30 days.

[Lord Leong (Lab)]

My Lords, that would be inconsistent with the Bill, because the Bill sticks at 30 days for public authorities. We are trying to tidy this up. Any provisions that provide an extension for more than 30 days for public authorities will not happen. That is why we are sticking to 30 days for public authorities.

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[Lord Lansley (Con)]

Before the noble and learned Lord, Lord Thomas of Cwmgiedd, responds, can I just ask the Minister something? It seems to me that he is accepting the proposition, with which I entirely agree, that the nature of e-invoicing and the use of electronic trade documents will make it possible for the imposition of a limit on payment terms in relation to trade documents in the future. It is possible to do it. But the Minister seems to be saying that there are two parts to this amendment—one about people here selling goods or services abroad and the other about people abroad selling goods and services into the United Kingdom. On the first one, I kind of go with the Minister. I can understand the point he is making: that we do not want to disadvantage our companies in other markets where the payment terms may be different and longer. But for those who are selling into this country, surely the whole point is that they should be operating on the same payment terms. Is there not an argument for the Minister to look at the second limb of what Amendment 19 is proposing?

[Lord Leong (Lab)]

I appreciate what the noble Lord has just said, but it is important that the scope of the Bill is targeted at UK businesses and small businesses. A commercial arrangement between a company based in the UK or a business based elsewhere is probably outside the scope of this Bill in that regard.

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Moved by

[Lord Lansley]

44: Clause 11, page 15, line 19, at end insert—
“(1A) Sections 113B to 113E apply only where B is not a micro, small or medium-sized undertaking according to the regulations made under section 2E(7)(a) (exempted contracts: no restriction on payment terms) of the Commercial Payments and Interest on Late Payment Act 1998.”

[Lord Lansley (Con)]

My Lords, with Clause 11 and this group we move to the question of retention payments. We should not elide the question of late payments and retention payments, as if they were somehow part of the same argument. They are different arguments. Retention payments are not a late payment; they are a payment designed to allow the purchaser of a new building to have an opportunity to assess the quality of the new build and remedy any defects before the point at which a final payment is made. That is in theory. In practice, sometimes retention payments are a device for withholding cash, and they can be quite prejudicial to the contractor and imperil their cash flow. We all know that, for small businesses in particular, cash flow is of the essence. My amendments are intended to probe the circumstances in which retention payments make sense and the extent to which the ban is required. They will test some of those propositions.

Noble Lords will recall that, at Second Reading, I referred to representations that had been made by the National Housing Federation. It had expressed a concern about the ability of registered providers of social housing to assure themselves of the quality of the social housing build that they had contracted for, and it was looking for an exemption for social housing. I am not proposing that in any of these amendments. We should try to tackle this as a broad construction industry issue.

Since Second Reading, I have had two sets of conversations. I am grateful to the Minister and his officials for the opportunity to discuss retention payments. I also had the opportunity to talk with Real Estate:UK, which includes what we think of as the old British Property Federation. It is concerned about a complete ban on retention payments. Where it is coming from is that they are its means of securing quality assurance and defect remediation. This can be, as it says, especially important in high-risk and often high-rise residential buildings, in so far as it has to secure the construction industry’s compliance with building safety regulations. The importance of holding contractors to that is emphasised in its representations.

If retention payments are banned, the practical issue of how payments are then staged but do not fall into the category of retention payments is quite interesting and knotty. I am particularly grateful to, and look forward to hearing from, my noble friend about his Amendment 49. It is important that we do not slip into thinking that the final staged payments are retention payments; they may be a perfectly valid agreement into which contractors—two parties—enter.

I want to focus on my three amendments. They do not seek to frustrate the intentions of the Bill, but I want to probe whether some degree of compromise should be met between the concerns of the industry about the impact of an overall ban and the need to protect businesses and contractors, particularly small housebuilders, that are otherwise threatened by the lack of cash payments. Amendment 44 focuses on the small and medium enterprises—we have discussed those definitions—on the basis that the threat of a lack of cash and cash payments, and the consequences for their cash flow, is an issue for them. The purpose of this amendment is to ensure that they benefit from the ban on retention payments but that the same benefit is not extended to large businesses, which are better able to cope. Where large contractors are concerned, it may also have the additional benefit of holding them to account.

Amendment 45 looks at whether the contractor and the purchaser can agree on a period during which defects are to be remedied. It seems to me that, if we are looking at staged payments, there is a stage at which the contractor hands over a property at the conclusion for it to be transferred to the purchaser. The purchaser should have a period, even if it is only a matter of days, during which they are able to identify whether there are snags, defects or quality failings that are the basis on which the final payment should be made. If we are treating any period during which payment is retained as a retention payment, we run the risk of simply intruding into what ought to be a genuinely contractual relationship between two parties: the party who is agreeing to buy something and the purchaser who is agreeing to pay for it. They need to be able to agree on their terms of payment, on what will be provided and on when it is to be provided, so we need to understand why that period is being precluded and referred to.

Amendment 48 looks at whether the problem is the amount of the retention payment. By and large, it tends to be 5%, but it has in the past sometimes been more. The question is: if we were to limit retention payments to no more than 2% of a contract value, would that remove the problem? Would it enable the purchaser of a building still to secure the remedying of defects but not prejudice the cash flow of the builder?

Those are the three amendments, the purpose of which is, in essence, to say: is there a reason for not going to a full ban but stepping slightly back from that? If the Minister wishes to continue with a full ban, I put to him—I hope he might be able to respond in this debate, and we can look at it perhaps again on Report—the question of whether there is in fact a complementary package that Ministers can bring forward alongside a ban on retentions. If the issue is about quality assurance, the remedying of defects and making sure that people get the building they have paid for, we already have the powers to implement a new homes ombudsman scheme and a code of practice through the terms of Sections 136 to 140 of the Building Safety Act 2022 and Schedule 9 to it. At the moment, all but one major housebuilder has signed up on a voluntary basis to this code of practice, so we know that we are not far from where we need to be. But it is not mandatory and, to take it to the next stage, it would really need to be—and the powers exist, as I say, in the Building Safety Act 2022.

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[Lord Leong (Lab)]

I think the mere incentive of getting the money earlier will ensure that the service and the quality of work will be done to specification. Otherwise, the claim for compensation will come in, so the whole incentive is to get the work done properly in the first place.

[Lord Lansley (Con)]

I am most grateful to noble Lords for this short but really rather—forgive the pun—constructive debate. I think we were trying to probe quite how the Government are thinking about the implementation of a ban on retention payments. The Minister was very clear about what the Government are trying to achieve. If we follow down that path, I hope that, when we come together to consider this on Report, we might in the meantime have looked at the question of stage payments and what the Minister has said about nothing being ruled out where stage payments are concerned, so that there is no inadvertent limitation on the ability to stage payments during the course of a construction contract.

I would like to come back in the intervening period between now and Report to test the Minister, and through him the Ministry of Housing, Communities and Local Government, because they can be getting on with this. It is about not simply pre-market engagement but issuing an invitation to tender and making the regulations necessary to bring the provisions of the Building Safety Act into force, so that we can get on with this. That is part of the package that I think the Minister was alluding to, of trying to ensure that we have means other than retention payments to try to ensure the quality of new build. I hope we can continue to discuss those issues. That said, I beg leave to withdraw Amendment 44.

Amendment 44 withdrawn.