What the 60-day payment cap actually means for construction

Construction is about to become one of the only sectors in the UK governed by two separate payment regimes at the same time. That's just one of several details hiding inside the Commercial Payments Bill that looks, on the surface, like a simple 60-day payment cap.

Causeway recently ran a webinar looking at what's changing in construction payments, featuring senior voices from government and the Office of the Small Business Commissioner.

Featuring:

• Emma Jones, Small Business Commissioner, Department for Business and Trade
  

• Fergus Harradence, Deputy Director, Infrastructure & Construction, Department for Business and Trade

• Tim Cole, Industry Director, Trading, Causeway Technologies

In this article, we'll unpack how the 60-day cap actually works, why construction ends up with a dual legal regime, what changes in how payment periods are calculated, and where the practical risk sits for finance teams.

If you'd like the full discussion on the wider reforms behind this Bill, you can watch the webinar OnDemand here.

A 60-day payment cap with no way round it

The headline measure caps payment terms at 60 days between a payment's due date and its final date for payment. Any contract term that tries to extend this, or remove the right to charge interest on late payments, is simply void in law.

"There is no contractual route around the law."

Fergus Harradence, Deputy Director, Infrastructure & Construction, Department for Business and Trade

Government is already working with JCT and NEC, the two main providers of construction contract documentation, to update their standard suites to reflect the Commercial Payments Bill's new cap before it takes effect.

One industry, two rulebooks

The Commercial Payments Bill amends five separate pieces of legislation. Two matter most for construction: the Late Payment of Commercial Debts (Interest) Act, and the Housing Grants, Construction and Regeneration Act, which already sets the payment framework for construction contracts.

That leaves construction sitting under two parallel rules. Construction contracts continue to be governed by the amended Housing Grants, Construction and Regeneration Act, which sets out the payment and dispute resolution framework. Every other commercial contract, including non-construction work, falls under the separate Late Payment of Commercial Debts (Interest) Act, alongside the new powers held by the Small Business Commissioner.

For firms working across both construction and non-construction contracts, that means checking which framework applies before assuming a single set of payment rules covers everything.

Calculating payment periods: the Christmas and Easter trap

One of the more easily missed changes is how payment periods are calculated. The Housing Grants, Construction and Regeneration 

Act and the Late Payment of Commercial Debts (Interest) Act currently use different methods, because the construction Act discounts Christmas Day, Boxing Day and some bank holidays when working out deadlines.

The Commercial Payments Bill aligns both pieces of legislation onto a single calculation method. That's good news for consistency, but it means firms working on the old approach around Christmas and New Year, or over Easter, could inadvertently miss a payment deadline or the window for issuing a pay-less notice simply by using outdated internal processes.

Retentions, disputes and the pay-less notice

Alongside the payment cap, the Bill also brings in a dispute window and sets out when the clock actually starts running on an invoice, addressing a long-standing source of friction between buyers and suppliers. A payer intending to pay less than the sum claimed must now issue a pay-less notice at least seven days before the final date for payment.

The Bill also supports the wider government push to phase out cash retentions in construction, sitting alongside work on construction quality and alternative forms of security. As with the payment cap itself, this work is being pursued as part of a broader ambition to make the sector more productive and profitable, not simply as a compliance exercise.

"We want to do that in order to make the construction sector in this country much more productive, much more sustainable, much more efficient, and much better at delivering, with the aim of making it much more profitable and a better place to work for everybody in the industry."

Fergus Harradence, Deputy Director, Infrastructure & Construction

Visibility over paper: what leaders should prioritise

One theme raised repeatedly was payment status visibility: knowing where an invoice actually sits in a payer's process, rather than waiting to find out it's overdue. Neither the Bill nor the e-Invoicing mandate explicitly requires this, but the panel was clear that bigger businesses have a vested interest in providing it, since a supplier who can see their invoice is on track is far less likely to escalate a dispute unnecessarily.

Project bank accounts came up as one possible answer, but the panel didn't see them as the way forward.

"The project bank account is an analog solution in a digital world."

Fergus Harradence, Deputy Director, Infrastructure & Construction

Government is backing digitised payment platforms instead of mandating project bank accounts. These platforms cover a wider range of firms across the supply chain, give more accurate auditing, and are already being tested through ongoing public sector pilot schemes.

Build UK data already shows the average time to pay for large construction firms is now under 40 days, giving most of the sector real headroom against the new 60-day cap. The exceptions are firms whose internal systems batch invoices into monthly payment runs, a practice that's manageable today but could tip into late payment once the new rules apply.

Key takeaways

• Any contract term that tries to override the 60-day cap, or remove the statutory right to interest, will be legally void, with no contractual workaround available.

• Construction contracts will continue to sit under the amended Housing Grants, Construction and Regeneration Act, while other commercial contracts fall under the Late Payment of Commercial Debts (Interest) Act, creating two parallel regimes.

• The Bill aligns payment period calculation methods across both regimes, changing how bank holidays and the Christmas and New Year period affect deadlines.

• Pay-less notices must be issued at least seven days before the final date for payment.

• Government does not plan to mandate project bank accounts, and expects digitised payment platforms to become the more common route instead.

Gold tier vs the new legal minimum

See the full discussion on how the Fair Payment Code's voluntary gold tier compares with the incoming statutory minimum, and the live audience question on whether individual late invoices could automatically trigger enforcement action. Watch the full webinar recording OnDemand here.