Title: Rethinking B2B Payments and Retentions in Construction: A Call for Legislative Reform

Late, long and disputed payments between businesses, and the use of retention clauses in construction contracts, are not new problems. Yet they remain stubborn frictions in supply chains, undermining cash flow, risking insolvencies, and distorting competition. As policymakers, industry bodies and practitioners continue to seek practical, durable solutions, there is a clear need to gather informed views on legislative measures that could address these challenges more effectively. This post outlines the case for reform and highlights potential policy options for consideration.

What’s driving concern about B2B payments and retentions?

– Cash flow stress: For many small and mid-sized enterprises (SMEs) working in construction and related services, delayed payments translate directly into liquidity constraints. Prolonged payment cycles force difficult budgeting decisions, increase reliance on credit and, in worst cases, threaten operational viability.
– Dispute cycles and project risk: When payment disputes arise, the time and money spent on resolving them can be substantial. Protracted disputes can stall projects, escalate costs, and erode trust across the supply chain.
– The role of retentions: Retention clauses are designed to protect against defects or incomplete works. In practice, however, retention monies can be tied up for extended periods, with little transparency about when funds will be released or under what conditions. This can create a cash-flow bottleneck for subcontractors and suppliers, while funds remain with the party holding retention.

What balance should legislation strike?

The central question is how to create a framework that encourages timely payment and fair dispute resolution, while preserving the legitimate use of retentions to safeguard project outcomes. Any reform should aim to:

– Improve predictability and transparency in payment terms.
– Reduce the durations of disputes and the financial impact on suppliers.
– Provide secure, efficient mechanisms for retention that do not unduly obstruct cash flow.

Possible legislative measures to consider

1) Mandatory prompt payment standards for B2B transactions
– Establish a clear default: payments to be made within a defined period (for example, 30 days from receipt of a valid invoice or completion of a milestone, subject to contract terms and any agreed variations).
– Prohibit improper withholding: constraints on withholding payments without a valid, documented reason, reducing the risk of creditor-friendly delay tactics.
– Streamlined invoicing and dispute pathways: require simple, standardised invoicing formats and an expedited process for resolving disputed sums, so that cash flow is not held up by technicalities.

2) Strengthened rights and clarity around disputes
– Timely resolution targets: codify a fast-track pathway for small-value disputes and establish predictable timelines for adjudication or other quick dispute mechanisms.
– Interest on late payments: automatic interest on overdue amounts to incentivise timely payment, with clear rules on calculation and application.
– Clear separation of rights and remedies: ensure that dispute resolution processes do not unreasonably delay payment for undisputed portions of an invoice.

3) Greater transparency in payment practices
– Public or industry-wide reporting: require larger contractors and clients to publish payment performance data (e.g., average payment terms, proportion of payments made late, average time to settle disputed invoices).
– Benchmarking and accountability: create benchmarks for payment performance by sector and organisation type, enabling SMEs to make informed decisions and negotiate more effectively.

4) Reform of retention practices
– Cap and timetable for retentions: set sensible caps on retention percentages and establish a clear schedule for release tied to milestones and defect rectification periods.
– Alternative retention mechanisms: encourage or require the use of retention bonds, insurance, or escrow arrangements as alternatives to cash retentions where appropriate.
– Ring-fenced or transparent retention handling: require retention sums to be held in dedicated mechanisms that ensure funds are accessible to those entitled to release, subject to qualified releases for defects or non-performance.
– Transparency around retention accounting: mandate clear accounting for retained funds, including explicit statements of conditions for release and the timing of any releases.

5) Model contract terms and standardisation
– Promote standardised, SME-friendly terms: develop and promote model contract terms that embed prompt payment, clear dispute processes, and balanced retention provisions.
– Training and guidance: provide practitioners with practical guidance on how to implement these terms in real projects, including templates for invoices, certificates, and release notices.

6) Transitional and enforcement considerations
– Phased implementation: allow a reasonable transition period to minimise disruption for ongoing projects and to give contracting parties time to adjust.
– Enforcement and penalties: ensure there are proportionate penalties for non-compliance, backed by robust enforcement mechanisms, without creating an overly punitive environment that stifles legitimate business activity.
– Support for SMEs: recognise the particular vulnerability of smaller suppliers and ensure that measures include targeted support, such as access to independent dispute resolution resources or advisory services.

What are the potential benefits?

– Healthier cash flow across supply chains: timely payments reduce liquidity pressures and enable SMEs to invest in growth, equipment, and workforce.
– Reduced project risk: quicker disputes resolution lowers the chance of cost overruns and project delays.
– Greater market competitiveness: a transparent, predictable payment regime levels the playing field between large incumbents and smaller subcontractors.
– More sustainable retention practices: aligned retention mechanisms protect project outcomes while minimising the financial strain on subcontractors and suppliers.

What are the challenges and considerations?

– Industry diversity: construction and related sectors include a wide range of project sizes and contractual arrangements. A one-size-fits-all approach may not be appropriate; flexibility within a robust framework is key.
– Administrative burden: new reporting or formal processes must be designed to avoid creating excessive bureaucracy, particularly for SMEs.
– Interaction with existing contract law and dispute mechanisms: reforms need to work in harmony with current legal frameworks (for example, adjudication and arbitration regimes) and not undermine established remedies.
– Transitional uncertainty: stakeholders will need clear guidance on how existing contracts transition to any new regime, to prevent unintended consequences.

Conclusion

There is a clear policy impetus to address the persistent issues around late, long and disputed payments, and to modernise retention practices within construction contracts. Thoughtful legislative design can incentivise timely payment, speed up dispute resolution, and create fairer, more transparent retention arrangements without compromising the integrity and quality of construction projects.

We welcome views from across the sector. In particular, practitioners, procurement professionals, SME representatives, and large clients are invited to share their experiences, concerns, and constructive ideas on proposed approaches. What works in practice, what gaps remain, and how might a reform package be structured to deliver tangible benefits in a timely, proportionate way?

If you have perspectives to contribute, consider submitting feedback to the relevant consultation or policy forum. Your input can help shape a framework that supports cash flow resilience, project viability, and a healthier, more competitive B2B landscape in construction.

January 16, 2026 at 01:00PM
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