[ Spotlight: Late payment ]


Payment in 120 days... is unacceptably long, and can be life-threatening for SMEs


payment terms of 30 days for work completed.’


Acting up Introduced to increase clarity and certainty for payment in construction contracts and to improve rights for contractors to suspend their work in non- payment circumstances, the Construction Act 2011 now applies to oral as well as written contracts.


It has also addressed the


long-standing issue of retentions and the ‘pay when paid’ culture that has dominated the sector. Paul Jackson, commercial advisor at the ECA, explains: ‘The Construction Act requires contracts to include an “adequate payment mechanism” for determining the amount and due dates of payments. Section 113 prohibits pay when paid clauses, except where the third party is insolvent. This also applies to subcontractors that, in turn, subcontract to other companies – they must be aware of this and make sure that any contract refl ects it.’ However, despite its good intentions, Paul


Reeve believes that the Construction Act still hasn’t gone far enough to protect the supply chain, allowing bad payment practices to continue. To help address this, the ECA has, for example, supported the use of project bank accounts (PBAs), which allow members of the construction subcontract supply chain – many of which are SMEs – to get paid in as little as fi ve days or less from the due date. The ECA believes that PBAs can open the tap for cash fl ow through the system and support closer working relationships within the broader supply chain. Although the government is desperate


to kick-start the economy, this is being hampered by the high levels of insolvency


March 2013 ECA Today 55


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