Lord Mendelsohn has taken up representations from industry groups, including the Specialist Engineering Contractors’ (SEC), to improve payment security for SMEs.
He is picking up the baton from Conservative MP Peter Aldous, a former surveyor, who sought to protect subcontractors from payment abuse by promoting the Construction (Retention Deposit Schemes) Bill 2017-19 – otherwise known as the Aldous Bill. His goal was to reform the practice of withholding retention payments by putting the money into a third party trust. With parliament’s time occupied by Brexit arguments, there was no time for the Aldous Bill to be considered before the December 2019 general election and so it fell.
Lord Mendelsohn’s bill goes further. His bill, if it is enacted, would force all firms to pay their bills within 30 days. The remit of the small business commissioner would be expanded include the construction industry and the commissioner would have powers to impose penalties on large companies that are serial late payers, provide false payment performance data or fail to provide requested information as part of investigations. Small construction firms would be able to refer payment disputes to the small business commissioner.
Lord Mendelsohn’s bill also seeks to have accrued interest on late payments automatically included in due payments (without the need to separately claim it). And it would outlaw such payment practices as prompt payment discounts, where purchasers (often tier one contractors) demand fees or discounts in exchange for timely payment of invoices, and charges for onboarding and staying on supplier lists.
The bill also seeks to amend the Public Contracts Regulations 2015 to mandate the use of project bank accounts for public sector contracts over £500,000.
Jonathan Mendelsohn was given a peerage by the Labour Party in 2013 after a career as a political lobbyist; in partnership with fellow Labour activists Ben Lucas and Neal Lawson, he was the M in the lobbying firm LLM Communications.
Lord Mendelsohn said: “Late payment is crippling small businesses while the UK economy is crying out for investment. By failing to tackle late payment we are starving our small businesses of the capacity to act. The recent huge escalation in outstanding payments shows that decades of promoting ‘culture change’ has only made things worse. This bill will tackle the issue once and for all with a package of measures that is operable, impactful and measurable.”
Rudi Klein, chief executive of the SEC Group, said: “I wish to place on record my thanks to Lord Mendelsohn and also the thanks of SMEs in the UK’s construction industry which have had to bear the impact of payment abuse and losses from major insolvencies in the industry.”