The Bill was introduced to the House of Lords on 19 May 2026 and has had its first and second readings. Towards the end of July, the first set of amendments were published. Next, it will undergo a third reading in the House of Lords before moving to the House of Commons. Timescales to reach Royal Assent have not been published; however, the Small Business Commissioner has commented that she is hoping for the Bill to obtain Royal Assent in early 2027, after which secondary legislation will require to be brought forward to bring all aspects of the Bill into force.
As late payment is a devolved matter for Scotland, the Bill will require consent from the Scottish Parliament. The original legislative consent memorandum was lodged with the Scottish Parliament on 19 June 2026, with a supplementary memorandum considering the House of Lords amendments being lodged on 6 August 2026. The Scottish Government has recommended that the Scottish Parliament provide its consent, so this is unlikely to delay the Bill from obtaining Royal Assent.
Is there any change to the direction of travel?
The short answer to this is no.
Retentions
For the ban on retentions, a number of Lords raised the issue of alternatives to retention sums to ensure quality. Lord Leong, on behalf of the Department for Business and Trade, has stated that "despite the existence of retentions for well over 100 years, it is clear from the Late Payment consultation, research and conversations with businesses that these are neither an effective means of preventing defects nor remediating significant problems." He also cited Dame Judith Hackitt's report in saying that "retentions are an example of a practice that creates tension and undermines the delivery of safe and high-quality buildings." As such, the Government is not proposing to make any exceptions to the ban on retentions.
The Government has acknowledged the concerns on improving quality and safety and has pointed to the work being carried out under the ambit of the Building Safety Act 2022. Lord Leong has also set out that it is the Government's intention to work with the Construction Leadership Council and other organisations such as the Get It Right Initiative to develop "practical approaches to improving quality". Lastly, the Government has stated that it is "working with the insurance sector, surety providers and public and private sector clients" to identify how the bond surety market can be strengthened. With one of the stated aims of the Bill being the protection of small and medium-sized enterprises (SMEs), the question will inevitably become one of whether or not sureties are both available and affordable to these companies.
Small Business Commissioner
Although most of the new powers being provided to the Small Business Commissioner, for example the SBC adjudication scheme, do not extend to construction contracts (as defined in the Housing Grants, Construction and Regeneration Act 1996), Lord Leong has clarified that the Commissioner will have the power to provide advice, information and training to businesses in all sectors, including construction. The Commissioner's power to launch investigations in relation to persistent failure to pay suppliers will also apply to the construction industry. These powers are applicable to larger businesses (typically those with a headcount greater than 50, not being a public authority). Further, it is important to note that if the statutory right to adjudicate is not available under the contract, for example if a construction business enters into a non-construction contract, the Commissioner's adjudication powers will be applicable to payment disputes under that contract.
Payment Terms
Amendments were tabled by some Lords who were aiming to shorten the maximum payment terms (currently set at 60 days where the purchaser is not a public authority). With many construction contracts running on monthly interim payment cycles and standard forms specifying maximum payment periods considerably shorter than 60 days, might we actually see a backward step in terms of cash flow for small construction companies? These proposed amendments, which proposed to vary the maximum period to 30 or 45 days, have not been taken forward and the 60-day cap remains in the Bill.
Public Authorities and Construction Contracts
The Lords' amendments include the introduction of two new sections in the Procurement Act 2023. The sections are aimed at bringing the payment terms implied into contracts by the Procurement Act 2023 into closer alignment with the payment terms that will be implied into other commercial contracts by Part 1 of the Bill and to clarify how the Procurement Act 2023 implied terms work for construction contracts. The amendments will disapply the provisions in the HGCRA 1996 where, if the construction contract does not contain a final date for payment, the Scheme will apply. Instead, for contracts not exempted from the Procurement Act 2023, the final date for payment will be implied by the Procurement Act 2023 itself.
Whilst some Scottish public procurement is caught by the Procurement Act 2023, Scottish-only public authority spending is excluded and therefore these changes won't apply to a lot of Scottish public construction contracts. To the extent that the amendments are passed into law, the Scottish Parliament may consider further consequential changes to Scottish procurement law for construction contracts so as to avoid different payment regimes north and south of the border.
Next steps
We await the first reading in the House of Commons and will be watching to see if the Scottish Government will be bringing forward any amendments to Scottish procurement law in line with the provisions in the Bill and the proposed changes to the Procurement Act 2023.
