The Commercial Payments Bill: What It Means for Your Construction Business

Retentions banned. Payment terms capped at 60 days. Interest on late payment fixed by law, with no way to contract out of it. If your business works in construction, the Commercial Payments Bill currently making its way through Parliament could change how money moves through your contracts more than anything in a generation.

The government introduced the Bill to tackle a problem that’s been quietly damaging supply chains for years: late payment. Construction gets singled out for the toughest treatment, because retentions, the 3 to 5% typically held back from a contractor’s payments until well after the work is done, are being banned outright.

In this article, we look at what’s changing, where the Bill actually is in Parliament right now, and what it means for construction businesses on both sides of a contract.

What’s changing, and why now

Late payment is estimated to cost the UK economy £11 billion a year, and around 44% of invoices to small businesses are paid late. The government has described the Commercial Payments Bill as “the most significant legislation to tackle late payments in over 25 years”.

For construction, three changes matter most. Retentions, the percentage of a contract sum withheld as security against defects, will be banned after a transition period. Payment terms will be capped at 60 days for large firms paying smaller suppliers, or 30 days where the payer is a public authority. And statutory interest on late payment will be fixed at 8% above the Bank of England base rate, with businesses no longer able to agree a lower contractual alternative.

Where the Bill actually is right now

The Commercial Payments Bill was introduced in the House of Lords on 19th May 2026 and had its second reading on 9th June. It completed committee stage on 21st July, and as of this month it’s back in the Lords for further scrutiny, with peers considering amendments on maximum payment periods and how different sizes of business are defined.

It isn’t law yet, and won’t be for some time. Most commentators expect it to reach the House of Commons early in 2027 at the earliest, with the government still aiming for Royal Assent that year. Nothing changes overnight, but the direction of travel is clear, and construction businesses have a genuine window to prepare before any of this takes effect.

The retention ban is the one causing the most concern

Of the three changes, the retention ban is generating the strongest reaction from the industry. As currently drafted, existing retention clauses would become void after a two-year transition period, with a further year allowed for existing retentions to be worked through.

The difficulty isn’t the principle, most agree retentions cause real cashflow strain, it’s the lack of anything ready to take their place. Retentions work as a continuous, low-cost incentive to fix defects and hand over paperwork like collateral warranties after practical completion. The alternatives, parent company guarantees and performance bonds, are blunter instruments: expensive to arrange, often time-limited and only useful once something has already gone wrong. The government has acknowledged the construction sector needs a more developed surety market to fill the gap, but hasn’t yet set out how that would work in practice.

The 60-day cap could squeeze contractors in the middle

The 60-day cap is aimed at protecting smaller suppliers from the kind of payment terms that contributed to Carillion’s collapse in 2018, when the company was reportedly paying some subcontractors on 120-day terms.

The complication for construction is where a main contractor negotiates longer payment terms with an employer under the large-company exemption, but still owes its own subcontractors within the statutory 60 days. That’s consistent with the existing ban on “pay when paid” clauses, but it can leave a contractor funding its supply chain before it’s been paid itself, which is precisely the cashflow pressure the Bill is meant to relieve elsewhere in the chain.

No more contracting out of statutory interest

Since 1998, businesses have been able to contract out of statutory late payment interest if their contract offered an equivalent remedy. Standard form construction contracts routinely do this, the JCT suite sets interest at 5% above base rate, a figure the courts have accepted as adequate.

Under the Bill, that flexibility disappears. Every commercial contract would carry statutory interest at 8% above base rate, whether the parties want it or not. Construction disputes are often genuine and hard-fought, so there’s a real risk that mandatory high-rate interest either discourages a business from pursuing a legitimate claim through fear of the cost if it loses, or pushes parties toward an early settlement they wouldn’t otherwise have accepted.

The Small Business Commissioner gets more teeth

The Bill doesn’t just change the numbers, it changes who enforces them. The Small Business Commissioner would gain the power to adjudicate contractual payment disputes, investigate persistent poor payment practices and impose financial penalties on businesses that breach their reporting requirements. Any business found withholding a retention unlawfully once the ban is in force could face a penalty on top of statutory interest, set at the higher of £40 or 50% of the amount wrongly retained. Large businesses will also face new reporting duties, including publishing how much interest they’ve paid or still owe.

Getting ready before the changes land

None of this needs acting on today. It does need watching, because the direction of the Bill is settled even if the detail and timing aren’t, and the businesses that come out ahead tend to be the ones who’ve already thought through what a retention ban and a fixed payment cap would do to their cashflow.

If you’d like help thinking through what the Commercial Payments Bill could mean for your business, please get in touch. WCL provides accountancy and business law support to construction businesses, from cashflow forecasting to reviewing the contracts these changes will eventually touch. We’d love to hear from you.