Encouraging fair payment in the construction industry
Encouraging fair payment in the construction industry

The following Construction guidance note provides comprehensive and up to date legal information covering:

  • Encouraging fair payment in the construction industry
  • Government initiatives
  • What does fair payment guidance say?
  • Are these initiatives working?
  • Late payment legislation

Government initiatives

Lengthy contractual payment periods and late payment have long been considered to be a problem in the construction industry. Failure by a customer (eg a main contractor) to pay the supplier (eg a sub-contractor) on time can lead to serious problems for the supplier—interrupted cash flow can result in the supplier incurring debt financing costs to cover the period in which payment is outstanding, the supplier may find it more difficult to access affordable finance generally, the supplier may also find itself in dispute with its own supply chain if it is unable to pay on time, and ultimately the supplier could become insolvent.

To seek to address these problems in the public sector, the Office of Government Commerce (OGC) (as it was then known) published its 'Guide to best 'Fair Payment' practices - construction procurement' in 2007. This guide recommended best fair payment principles and practices, and applied to public sector works contracts from 1 January 2008. In 2010 further guidance provided that central government works contracts should include fair payment throughout the supply chain (ie within 30 days of assessment, which applies down to tier 3 suppliers).

In 2014 the Construction Leadership Council, which is made up of representatives from government and the construction industry, announced a payment charter under which clients and main contractors pay all