Commercial Payments Bill: What the proposed reforms could mean for UK construction

The UK Government’s proposed Commercial Payments Bill seeks to tackle late payment practices that have long affected businesses across the UK. For the construction sector, where payment delays, cash flow pressures and insolvencies remain persistent challenges, the legislation could bring significant changes to payment terms, interest provisions, invoice disputes and retention arrangements.

Late payments remain a major challenge

The UK Government is introducing legislation aimed at targeting a culture of late payments in businesses which are harmful to the cashflow of small- and medium -sized enterprises.

In May 2026, the King’s Speech announced that a Bill would be introduced that aims to deal with “late payments” in supply chains. The UK construction sector is known for late payments, with the Department for Business and Trade publishing statistics showing that 14 per cent of invoices to large construction firms are paid late and that the median period for payment to be made is 33 days.

Insolvencies are also a major issue in construction, with the UK construction sector accounting for 17 per cent of all insolvencies in England and Wales in July 2026. The BCIS has noted that this is “in part due to the nature of contract cycles and the challenges of cash flow management that contractors are subject to”.

The Government’s response, the Commercial Payments Bill (CPB), is designed to tackle late payment, citing that this costs the UK economy £11 billion a year and sees 38 UK businesses close every day.

Proposed payment term caps

Key provisions proposed comprise the mandating of core payment rules which will include the provision of a 60-day cap on payment terms.

The Joint Contracts Tribunal 2024 provision allows for a 14-day payment period, but some client organisations amend this payment period and payment periods of 30, 60 or 90 days are common.

Public sector clients were initially expected to comply with a much shorter 30-day payment period. However, as the Bill goes through scrutiny, these periods may be subject to review, with members suggesting a slightly longer period of 35 days for public sector clients and a shorter 45-day period for the private sector.

Interest on late payments and invoice disputes

The Bill also proposes to go further in relation to interest than the Late Payment of Commercial Debts (Interest) Act already does by introducing the payment term caps discussed above, prohibiting the act of “contracting out” of interest clauses and enforcing a mandatory default of interest payments on late payments at 8 per cent above the Bank of England base rate.

A process for the disputing of invoices will also be introduced. Buyers will need to dispute invoices eight days prior to the invoice becoming due for payment, with the intention that disputes are raised more than a week before payment becomes due.

Construction contracts, however, are subject to the Housing Grants, Construction and Regeneration Act 1996 (commonly known as the Construction Act) and therefore are likely to be exempt from this process. Penalties will be in place for non-compliance, currently proposed to be a fine of £40 or 1 per cent of the disputed sum, whichever is greater.

Proposed ban on retention clauses in construction contracts

The Bill also proposes to amend the Construction Act to ban retention.

This will not, however, be implemented immediately, but instead after a two-year transition period. Any existing retention mechanisms will become void three years after this transition period, while any new retention clauses in contracts will automatically become void.

The party who has retention held against them will be entitled to £40 or 50 per cent of the sum held, plus interest.

New reporting requirements for large businesses

A reporting mechanism is also being introduced whereby large companies and Limited Liability Partnerships must report the amount of interest they owe, while company boards must make regular recommendations to improve payment processes.

Current progress of the Commercial Payments Bill

The Bill has been proposed and is currently progressing through the House of Lords, having completed its Second Reading on 9 June 2026, completed Committee Stage on 21 July 2026 and entered Report Stage on 15 September 2026.

The proposed legislation represents a significant development for businesses operating within construction supply chains. While the Bill continues its passage through Parliament and some provisions remain subject to debate, the direction of travel is clear: greater scrutiny of payment practices, stronger protections against late payment and increased transparency in commercial relationships.

Interested in construction law?

The legal and commercial environment surrounding construction contracts continues to evolve, with issues such as payment practices, dispute resolution, procurement and contractual risk becoming increasingly important for industry professionals.

The University of the Built Environment’s new LLM Construction Law, launching in September 2027, has been designed for professionals seeking to develop advanced legal knowledge of the construction sector and its regulatory framework.

Find out more about the LLM Construction Law programme and register your interest today.