Short answer: The Commercial Payments Bill would tackle three serious construction payment problems—long payment terms, late payment and retention money held back from subcontractors—but it would not solve every cash-flow or risk issue in the sector. Its proposed ban on deductions and withholding of retention payments is the most construction-specific reform. The bill was still progressing through Parliament on 18 October 2026, so none of these measures should be treated as current law.
Where the bill stood in October 2026
The UK Parliament bill record identified the measure as HL Bill 45, amended in Committee. Lords report stage concluded on 15 September 2026, and third reading was scheduled for 20 October 2026. Commons stages and Royal Assent remained ahead at the latest reported stage. That timetable can change, and the final wording, commencement dates and transition rules must be checked after Parliament completes its work.
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For a construction business, the practical distinction is important. The proposals may influence contract negotiations and payment policies, but they do not yet create an enforceable right to a 60-day term, a retention-free payment or the proposed late-payment interest. Until Royal Assent and the relevant commencement regulations, existing construction-payment rules continue to apply.
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What the Commercial Payments Bill proposes
The government’s overview describes a package aimed at improving how larger buyers pay smaller suppliers. The construction consequences depend on the contract, the parties’ size and the eventual regulations.
| Proposal | Potential construction effect | Status and qualification |
|---|---|---|
| Maximum 60-day payment term | Could limit very long payment periods imposed on subcontractors and specialist suppliers. | Proposed maximum, with strictly limited exemptions; final drafting and exemptions were not settled while the bill was in Parliament. |
| Interest at 8% above the Bank of England base rate on late payments | Raises the cost of paying certified invoices late and gives suppliers a clearer monetary remedy. | Proposed statutory rate; it would apply only when the relevant conditions are met and the provision is in force. |
| Fixed sum when a purchaser raises a dispute late or without enough information | Could discourage vague or last-minute withholding arguments after work has been completed. | Proposed right in specified circumstances; the bill and regulations will determine the trigger and amount. |
| Prohibition on deducting or withholding construction retentions | Would remove a familiar source of delayed cash flow for contractors and subcontractors. | Construction-specific proposal; the government said it would consult further on implementation timing. |
| Stronger Small Business Commissioner powers | Could improve investigation and enforcement of persistent poor payment practices in covered contracts. | The proposed adjudication powers would not cover construction contracts because construction already has statutory dispute-resolution mechanisms. |
Why payment is a structural construction problem
Construction projects often involve a chain of employers, main contractors, tier-one subcontractors, specialists, labour-only subcontractors and suppliers. Money can move down that chain only after valuations, certification, defect questions and upstream payment processes have been completed. A delay at the top can therefore become a working-capital crisis several tiers below.
Evidence summarised by the House of Lords Library from the House of Commons Business and Trade Committee indicated that 44% of invoices from small and medium-sized enterprises were paid late. The briefing said late payment was particularly pronounced in construction. It also reported estimates that late payments cost the UK economy £11 billion a year and that 14,000 businesses close annually because of late payment. These are reported evidence and estimates, not measurements of what this bill will save or how many firms it will protect.
Late payment is especially damaging to smaller firms because payroll, plant finance, insurance, tax and materials bills must be paid before the related valuation is received. A business may be profitable on the final account yet become insolvent while waiting for certified money. A statutory maximum term and interest charge address the timing of payment, but they cannot by themselves guarantee that a disputed or poorly documented invoice will be paid.
Retentions: the clearest construction reform
A retention is money deducted from an interim payment and held as security for defects or incomplete work. It is commonly released in stages, often at practical completion and after the defects period. The bill proposes to prohibit deduction and withholding of retention payments under construction contracts.
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What the consultation evidence found
The government’s 2019 consultation-response summary recorded several problems reported by construction businesses:
- less working capital and reduced capacity to invest;
- retention money released late or not released at all;
- limited transparency about when and why money would be released;
- retentions used as leverage in payment negotiations; and
- a power imbalance between contractors and subcontractors.
That material is historical consultation evidence, not a current prevalence survey. It nevertheless explains why a retention prohibition is central to the construction debate: it removes a deduction that is built into many contracts rather than merely penalising late payment after the event.
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How large is the exposure?
During the House of Lords debate on 9 June 2026, a speaker cited approximately £223 million in retention payments lost each year through insolvency and £4 billion to £6 billion held in retentions across the sector at any one time. Those figures were attributed debate figures and were not independently verified in the parliamentary material summarised here.
In the 15 September 2026 report-stage debate, a speaker stated that 65% of retention payments are paid back late and almost 25% are never paid back at all. That sentence should be treated as the speaker’s Hansard statement, not as an independently checked government statistic.
When would a ban start?
The government overview said it would consult further on the timing of implementation. In the June 2026 second-reading debate, the government described a two-year transition period before the ban fully came into force. That was the government’s position at that stage, not a settled commencement date. Existing and new contracts may therefore be treated differently, depending on the final bill, regulations and any transitional provisions.
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What replaces the protection against defects?
Clients and main contractors use retentions to manage the risk that defects will not be corrected or that a contractor will become insolvent before completion. Removing the deduction does not remove that risk. The government has said it will work with industry on quality and with financial services on surety products that could provide an alternative form of security.
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The available material does not establish how affordable, widely available or effective those alternatives will be. A project team considering a retention-free contract would need to examine the cost and enforceability of bonds, guarantees, parent-company support, warranties, insurance, escrow arrangements and carefully drafted defects obligations. The bill itself does not select one replacement safeguard.
Payment terms and late-payment interest
A proposed 60-day ceiling
A maximum 60-day payment term would target contracts that make a small supplier wait far longer than the value of its work warrants. The government describes exemptions as strictly limited. Until the final text is available, businesses should not assume that every construction invoice will automatically be payable within 60 days: the definition of a payment term, permitted exceptions, business-size tests and the treatment of disputed sums will matter.
Construction contracts also contain valuation dates, payment notices, pay-less notices, certification procedures and final-account mechanisms. A term limit would operate alongside those processes rather than replacing them. Firms should continue to issue notices on time and preserve records showing when an invoice or payment application was received and what information accompanied it.
Interest at 8% above the Bank of England base rate
The proposed statutory interest rate is 8 percentage points above the Bank of England base rate. Because the base rate changes, the monetary rate would change with it. The proposal is intended to make late payment financially unattractive, but interest is useful only if a supplier can establish that the amount was due, the payment was late and no statutory or contractual exception applies.
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The bill would give suppliers a right to a fixed sum in certain cases where a purchaser raises a dispute late or without sufficient information. The purpose is to deter a buyer from waiting until the payment date, or later, to produce an unexplained objection. The amount, evidence required and interaction with existing construction payment notices will depend on the enacted legislation and regulations.
Why the Small Business Commissioner is not the construction adjudicator
The bill would strengthen the Small Business Commissioner’s ability to investigate persistent poor payment practices, enforce payment and reporting requirements and adjudicate some contractual payment disputes between small and larger businesses. That description should not be read as creating a new adjudication route for construction contracts.
In the June 2026 Lords debate, the government said the proposed Commissioner adjudication powers would not apply to construction contracts because the Housing Grants, Construction and Regeneration Act 1996 already provides statutory dispute-resolution mechanisms. A construction firm could potentially use the Commissioner’s powers for a non-construction contract, but a dispute under its building contract would remain subject to the construction payment and adjudication framework that applies to that contract.
This distinction matters when assessing the bill’s likely effect. Stronger investigation and reporting could influence a company’s general payment culture, yet a subcontractor cannot assume that the Commissioner will decide a disputed valuation, certify an amount or order payment under a construction contract.
Challenges the bill does not settle
Uncapped liabilities
The parliamentary briefing identified uncapped liabilities as another concern raised in construction evidence. The payment proposals do not, on the material available, create a general cap on a contractor’s liability for delay, defects, design responsibility, indemnities or other losses. A firm may receive money faster and still face an exposure that threatens its balance sheet.
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Quality, defects and insolvency risk
A retention ban could improve cash flow while reducing one form of security for completion and defects. The sources do not establish whether surety products or other safeguards will replace retentions at comparable cost, nor whether quality outcomes will improve or deteriorate. Those are implementation questions rather than proven effects of the bill.
Payment behaviour
Legal rights do not guarantee prompt payment if suppliers fear damaging a commercial relationship, lack the records needed to enforce a claim or cannot afford a dispute. The available evidence does not show how much payment behaviour will change in practice. The proposed interest, fixed-sum remedy and enforcement powers are intended to change incentives, but their effect will depend on enforcement, awareness and the final rules.
Contracts outside the bill’s scope
The briefing describes the measures as applying to UK-to-UK business transactions, not international trade or global supply chains. A construction business working across borders should therefore check which contract, governing law and payment regime applies rather than assuming the bill follows the project wherever it is performed.
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What construction businesses should do now
The bill is not yet law, but firms can prepare without rewriting every contract prematurely.
- Map payment dates. List payment-application dates, certification deadlines, notice requirements, final-account milestones and actual receipt dates for each major contract.
- Identify retention exposure. Record the percentage withheld, the release triggers, the party holding the money, and any retention tied to an upstream event.
- Separate construction and non-construction contracts. The Commissioner’s proposed adjudication powers may be relevant to a non-construction service or supply contract, but not to a construction contract under the government’s stated approach.
- Preserve evidence. Keep applications, invoices, payment notices, pay-less notices, correspondence, programme records and proof of delivery in a form that can show when information was supplied.
- Model cash flow under different commencement dates. Do not assume that the proposed two-year transition, or any other date mentioned in debate, will be the final rule.
- Review alternative security. If a retention-free contract is likely, compare the cost, scope and enforceability of bonds, guarantees, insurance and other security with the protection the retention currently provides.
- Check the final legislation. Before relying on a statutory term, interest rate or fixed-sum remedy, verify Royal Assent, commencement regulations, exemptions and devolved implementation.
Overall assessment
The Commercial Payments Bill addresses genuine construction payment pressures, especially the cash-flow damage caused by late payment, long terms and withheld retentions. Its retention prohibition is a direct response to a construction practice that consultation evidence linked to delayed money, reduced investment capacity, opacity and unequal bargaining power. The proposed 60-day ceiling, 8% interest uplift, fixed sum for defective dispute notices and stronger payment-practice enforcement would add broader pressure on buyers to pay suppliers properly.
It is not a complete answer to construction’s payment challenges. Uncapped liabilities remain outside the measures described in the parliamentary evidence. Construction disputes would not move into the Small Business Commissioner’s proposed adjudication scheme. The sector still lacks an established, costed replacement for the security function of retentions, and the evidence does not yet show how the reforms will change behaviour in live projects.
Accordingly, the fairest verdict is yes, but only in part: the bill targets several of the biggest and most measurable payment problems, while leaving risk allocation, defects security, dispute conduct and practical enforcement to existing law, future regulations and contract administration.
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