Payment in construction contracts: horizon scanning and practical issues transcript

Good morning again to those who have just joined us and moving on to the next slide. I am Jane McMongle. I am a partner here at Broadies and I head up the transactional construction energy and infrastructure team. Our speakers today are Kirsten Milm who is a partner in our Edinburgh office and Craig Bradshaw and Claire Mills who are both legal directors in our team and exceptionally experienced lawyers in dealing with all things payment under construction contracts.

Today they will look at payment for off-site materials and projects, advanced payments and bonds and also some horizon scanning looking at the commercial payments bill and its implications for construction contracts. Our team deal with advising clients at the front end of a very wide variety of projects on suitable procurement structures to be adopted as well as various standard forms such as JCT, NEC and FID also frequently very recently as well as all documentation to be put in place with contractors, consultants and other various stakeholders.

For those of you who may not have worked with our team before, I'm proud to say that we are one of the largest construction teams in the UK. We have approximately 65 lawyers across the transactional team and the contentious construction team. Our team are both tier one and band one ranked in the key legal directories chambers and legal 500 which we are very proud of. I think we're only one of two firms ever to have achieved that in Scotland.

And our team acts for a diverse range of clients. We're pleased to see that our client base across various sectors is growing year on year. We act with private sector developers, public sector entities, contractors, funders, consultants, subcontractors. We have always been exceptionally active on core commercial real estate projects such as mixed juice retail living sector projects as well as large infrastructure projects, but we are now increasingly active in the energy space working on a whole host of renewables projects including solar, battery, and hydro.

Our cross- sector coverage provides us with a real 360deree view of the construction industry and interests of various stakeholders. So we are really well placed to advise on market norms on industry positions and current burning issues and patterns emerging. So to start us off today, I'm going to pass you over to Craig who will look at offsite materials in construction projects. >> Good morning everyone. We're kicking off with a whistletop tour of payment for off-site materials.

This is a really good topic which involves a consideration of practical legal, commercial, and insurance issues and illustrates a key difference between Scots and English law. Moving on to the next slide. Starting with the why question. What are the reasons for purchasing off-site materials? Well, program is an important consideration. Purchasing off-site may allow you to secure timely availability of materials. In terms of scarcity, there could be a known limited supply of the materials in question.

And looking at price certainty, buying offsite may allow you to purchase early to lock in agreed prices. Quality and modern methods. Off-site manufacturer allows kit to be produced in controlled and repeatable conditions which can improve quality and provide greater certainty around delivery times. Another possibility is that the nature of the product itself necessitates buying offsite where you have large complex pieces of equipment that need to be manufactured offsite.

So having established a good reason for buying offsite, what are the risks? This slide covers some of the key risks in buying offsite. Supply chain insolveny is a key risk. Another potential problem is that the materials may not even exist or they could be incomplete or defective. There could be retention of title in the supply chain. Damage could occur during storage or in transit. And finally, a general lack of control can be a problem if materials are being moved to other premises out with your knowledge.

So, we've got good reason to buy. We know what the risks are. So, what do we do next? Well, it's critical to get into the specific details. When the topic of buying offsite comes up, very often I find that the story emerges with limited detail. So, it's important to ask questions to gain a full understanding. Next slide. This slide looks at some starter questions and the answers to these of course may give rise to further questions.

Uh it's important to understand the full picture. I'm not going to go through these questions one by one, but picking out a couple that I think are quite important. Which which supply chain party or parties will hold the offsite materials? It could be one or more of the main contractor, a subcontractor or further down the supply chain. And that's an important question um in relation to structuring the documentation. Another important question is where will the materials be stored?

Is it somewhere in mainland Great Britain or could it be overseas? And that has quite an important impact on the risk in the transaction. Asking questions like these will give you will allow you to understand the requirements in more detail and will allow you to put in place suitable contractual arrangements. So, we've got a good reason to buy. We know the risks. We understand the facts. What's next? Well, we need to understand the key issues that need to be addressed.

Move on to the next slide. Five key issues to be addressed in the contractual documentation are payment, legal title, allocation of risk, insurance, and security. And how we address these issues will differ depending on whether the building contract is subject to English or Scottish law. Moving on to the next slide. In Scottish law, a building contract is categorized as a contract for working materials, not the sale of goods.

So legal title to materials cannot pass to the employer under the building contract when materials are located located offsite. In an English law building contract, legal title to materials can pass to the employer under the building contract when the materials are located offsite. So what does that mean for the contractual approach? Well, a key difference between Scottish and English law contracts is how the documents are structured.

Moving on to the next slide. In an English law building contract, the off-site materials provisions can be contained within the building contract. The next slide shows you that in a Scottish law transaction, the off-site materials provisions should be contained within a contract for purchase that is separate from the building contract. A contract for purchase will be a separate legal contract that sits alongside the building contract.

And as shown in the diagram, the contract of purchase could be with the main contractor or another supply chain member. Whether the transaction is subject to English or Scottish law, the five key issues that we looked at previously uh will need to be addressed. So in substance, similar issues do arise. Over the next few slides, I'll be looking at how these issues are addressed in the English GICT design the bill contract 2024 and in the corresponding Scottish SBCC contract.

We'll also look briefly at the NEC4 approach. So the next slide on the left hand side of this slide um the five key issues are listed and on the right hand column uh there's a summary of where these issues are addressed in the JICT contract. I'm not going to go through that slide in detail, but I'll mention some notable points. Firstly, the mechanism for identifying off-site materials is that the employer would produce a list to be attached to the employer's requirements document.

Therefore, the off-site materials are described in the contract as listed items. A second point is that the JICT makes a distinction between uniquely identified items and nonuniquely identified items. Well, there's no definition to explain that difference. Noni non-uniquely identified items are likely to be bulk generic materials like bricks or slates. Contractually, the difference is that an offsite materials bond is compulsory for non-uniquely identified items and is optional for uniquely identified items.

A third point to note is that the JICT is drafted in the basis that the offsite materials will sit with the main contractor or a first tier subcontractor. If the materials are sitting further down the supply chain, as sometimes happens in practice, then further consideration will need to be given as to how you're going to deal with that in the documents. Moving on to the next slide. With a bond in place, the contractual arrangements for an English JCT might look something like this.

Okay, moving on now to look at the SBCC approach. As noted previously, the Scottish approach is to have a separate contract of purchase for the off-site materials and the SBCC is drafted on that basis and contains template purchase contracts so the employer can purchase from a contractor or a first tier subcontractor. This slide therefore summarizes the contractor purchase position. I'm not going to go through that slide in detail but I will draw out some similarities and differences between the JCT and SBCC approaches.

So similar to the JCT uh the SBCC is drafted in the basis the offsite materials will sit with the main contractor or a first tier subcontractor. It's anticipated that the employer will enter into a purchase contract either with the main contractor or direct with a subcontractor. So again, if the materials are sitting further down the supply chain, further consideration will need to be given as to how to deal with that.

In contrast to the JCT, the SBCC has no provision for an off-site materials bond. Another difference is that the JCT contains certain express contractual conditions that must be met before the employer pays for the off-site materials. However, in the SBCC contract of purchase, similar points are only set out in guidance notes and are not expressed contractual conditions of payment. And the next slide looks at this. This slide summarizes the guidance note points that an employer is meant to check before signing an SPCC contract of purchase.

In practice, we often find that a bespoke purchase contract is used instead of the SBCC SBCC template. And one of the reasons for that is so that these guidance note points can be addressed within the bespoke form of purchase contract. And it's also common to see an express provision for inspection of the materials rather than relying on the provision in the underlying building contract. So moving on to the next slide which looks briefly at the NEC4 position.

While the NEC4 engineering and construction contract does deal with offsite materials, the provisions are brief in comparison to the JICT SBCC approach. Two key differences worth noting are that there is no option for an off-site materials bond and there's no Scottish law contract of purchase. Therefore, additional zed clauses would need to be used um to address those issues. The NEC scope document might also be used to set out additional detail.

So, moving on now to look at the last slide which produces some takeaways. Firstly, please do bear in mind the differences between Scottish and English law here as it does impact the contractual structure and the terms. Make sure you have a suitable contractual structure and in Scots law um that means using contracts for purchase and make sure you're um structuring the contracts in accordance with the place uh where the supplier is in the supply chain.

Understanding the back position is critical and so do ask as many questions as required to get to the bottom of what's intended in your particular transaction. And finally, from a more practical perspective, minuteed site visits and photographs and evidences of his insuranceances will stand you in goodstead. So, thank you and I'll hand over to Claire. >> Morning everyone and I'm going to look at advanced payments in construction contracts.

Um, we are definitely seeing an uptick in the use of advanced payments. sort of once a no-go area, they're now becoming much more common. And as a team here at Broadies, we have seen quite a few in recent months being provided for under construction contracts. I mean, the time involved to get a project to site, as a lot of you will be aware, means the contractors have often invested significant time and money at their risk waiting to get into contract with the employer.

Delays with planning, statutory consents can put pressure on the back end of a program. So both parties in the transaction are often recognizing there can be valid reasons for making an advanced payment to the contractor. Today I'm going to look at the advanced payment regimes that are baked into the SBCCJCT contracts and the MEC form of contract and the role of the advanced payment bond in agreeing this mechanism. So turning on to the next slide.

What is an advanced payment for? Well, um, as you'll likely be aware, under most construction contracts, the contractor is paid in a rears, usually monthly against the value of work carried out and for materials which are actually physically on site, as Craig has alluded to in the earlier section of this presentation. Often the first interim valuation under a construction contract is a month after possession on site.

And after the valuation, it could be a further 14 or 28 days before payment is actually made to the contractor. So that's quite a time lag between possession and actually getting any cash in the door, plus all the upfront costs that the contractor has incurred. So a contractor could seek an advanced payment for a number of reasons. Mobilization costs are often cited. um the instruction of off-site um fabrication of items or deposits for the purchase of long leading time items or for reserving pieces of specialist equipment like trying to book a specialist crane for on-site at a particular time in the project.

So unlike when an off-site materials agreement can be used, there's no specific materials in existence that payment can attach to. Rather, it's more like a basket of various costs that have been incurred by the contractor that it would otherwise not be able to include in an interim valuation. The aim of the advanced payment is essentially to relieve the cash flow pressure of the contractor and to allow the contractor to proceed with ordering items for the works in order to meet the program.

Advanced payments are typically structured as a payment that's made by the employer to the contractor and it's then repaid by the contractor back to the employer through deductions from sums that are otherwise due to the contractor under the construction contract. So how does this mechanism work in the contracts? And the next slide um we're looking firstly at the GCT and SBCC mechanism. So helpfully the main standard form construction contracts contain an optional mechanism for using an advanced payment.

Um the main standard forms of GCT and SBCC. So that's the design and build version or the standard contracts or if you're looking at GCT the intermediate contract all have bakedin advanced payment options. However important to flag the minor works forms of contracts do not have drafting from advanced payment. So careful consideration and bespoke drafting would be required if you want to use an advanced payment with a minor works contract.

The contract particular section of the um GCT and SBCC requires the parties to state if an advanced payment applies, if so, how much it will be and when it will be paid to the contractor. There's then a space for the parties to state when and how it will be reimbursed. So that's usually um a set of dates and corresponding amount of money against each date. Finally, there's an option for whether an advanced payment bond will be required.

And the default position under JCT and SBCC is that a bond is required. There's a template advanced payment bond contained in the SBCC contract. And I'll come on to bonds a bit later on. Interestingly, the contract particulars in the GCT and SBCC state that an advanced payment is not applicable where the employer is a local authority. And this restriction may be to align with traditional public accounting rules and financial regulations governing local government spending which generally prohibit paying public funds for goods or services before they're delivered or performed.

So, it's one thing to think about if you are a local authority employer client. And looking now at the operative provisions within the JCT and SBCC contracts, there's an obligation on the employer to make the advanced payment by the date stated in the contract, provided the advanced payment bond has been provided where an advanced payment bond is required. Where the bond has not been provided, the employer is not obliged to make the advanced payment.

It isn't stipulated in the GCT or SBCC, but presumably if the bond was provided after the date that the advanced payment was meant to be made, the employer would then make the advanced payment at that point. However, you might want to put in some bespoke drafting to make this patently clear in the contract in case you're late in procuring the bond and it runs over the date that the advanced payment was meant to be made.

Turning now to the interim valuation process. As you progress through the contract, the contract administrator or the employer's agent will deduct from the gross valuation the sums stated as due for reimbursement by the contractor to the employer of the advanced payment. So depending on the amount of the advanced payment, the anticipated payment profile under the contract, and the duration of the works, the advanced payment would typically be repaid in installments over a few interim payment cycles.

Expecting too much repayment too soon could push the contractor back into cash flow difficulties. Interim payments would be significantly reduced if the parties tried to frontload all of the repayment in the first few valuations. However, on the other hand, the employer will not want to be out of pocket for too long. So, a careful balance needs to be agreed. The bond will usually expire when the advanced payment is repaid.

And so, the cost of procuring an advanced payment bond may to some extent depend on how long the bond's going to be in place for. So, all these things will need to be taken into consideration when you're working out the repayment schedule for the advanced payment. Um and then if um the contract is terminated or when the parties are preparing the final account, all advanced payments and repayments should be taken into consideration.

And so there will be an accounting process to deal with that in those circumstances if required. And in those circumstances, of course, there's an express provision in the JCT that if a sum is due from one party to the other, it will be repaid. Turning now to the NEC form of contract and NEC4 EEC has various optional clauses that the parties can select to apply in their contract. The one for an advanced payment is known as option X14.

Parties would need to select that to include an advanced payment in the contract. So once you've selected option X14 in your contract data for the NEC you then need to complete the details in the contract data against the entry for X14. It's very similar to SBCCGCT in terms of the information required the amount of the advanced payment the period after the contract date which the contractor repays the installments the installments for repayment and whether an advanced payment bond is required or not.

So as I said very similar to JCT and SBCC albeit the language under NEC is very slightly different. And turning to the next slide and the operative clause in NEC again very similar to SBCC and GCT. However, it is actually made impatently clear in the NEC contract that failure to make the advanced payment by the employer is a compensation event. So the contractor could potentially be entitled to interest on late payment if the employer doesn't make the advanced payment that it has agreed to make.

It's also expressly clear under NEC when the advanced payment is to be made after the bond is provided. Another difference in NEC is that the project manager has a clear role in accepting the identity of the bond provider and a reason for not accepting the bond provider is stated to be if the bond provider's commercial position is not strong enough to carry the bond. So the project manager makes a judgment if they think that the bond provider is suitable or not.

Um like SBCC, the assessment process under MEC allows the project manager to assess the amount due to the contractor and then deduct from that the value of the repayment that has been agreed to be repaid at that point in time. Likewise, on termination, any amount of advanced payment still to be repaid would be accounted for as a sum due to the employer. Okay. So, looking now at advanced payment bonds, which I've spoken about quite a bit.

Um, I mean, reaching an agreement to have an advanced payment under the contract can be advant advantageous for the contractor um and also for the employer in terms of um allowing the program to proceed at pace etc. However, the greater risk is p placed on the employer because they are actually paying out the advanced payment to the contractor and no work has been carried out by that point on the ground at least. So the main risk to the employer in those circumstances is that the advanced payment is not repaid um and per perhaps because the contractor's become insolvent or is in breach.

So therefore an advanced payment bond is often required as security for the advanced payment. In practice, um, sometimes parties get to the point where the time and cost of procuring a bond has meant that they decide not to proceed with an advanced payment bond and they just provide the advanced payment at risk. But again, it's something to think about on a case- by case basis and what the circumstances are, the value of the advanced payment, and how quickly you're expecting it to be repaid.

Generally, most people will consider an advanced payment bond as a good method of securing that payment. The advanced payment bond is a form of security provided by a third party, typically a bank or an insurance company. And as you would expect, the bond covers the value of the advanced payment that has been made. And it will kick in where the contractor fails to repay, the contractor is insolvent, or the contractor's terminated for breach.

And turning on to the next slide. And typical terms of an advanced payment bond. Well, as I said earlier, under JCT and SBCC, there is a template advanced payment bond included in the contract schedules and actually under SBCC and JCT, the operative clause requires the bond to be provided in the form set out in the schedule and from approved by the employer. So if you are going to get a different form of bond, bespoke drafting will be required to capture this.

Um under NEC um of course the project manager accepts the proposed bond provider and the terms of the bond are said to be set out within the scope document. So there isn't a template advanced payment bond under NEC and parties will need to agree a form of bond upfront before the contract is entered into. Um however in our experience um all advanced payment bonds tend to be pretty similar. They are always on demand i.e. repayable on demand by the employer without the employer having to establish the contractor's liability.

This is in stark contrast to general performance bonds which are very difficult to obtain on an ondemand basis. the bond will cover the unpaid advanced payment. And so typically the bond will reduce as the advanced payment is repaid in installments back to the employer. And then final thing to look at in the terms of the bond is the duration of the bond and how long it will last for. So, will it expire um when the advanced payment is repaid, which would be fairly typical, but often there's an option for a long stop date to be included.

Um and that set long stop date will mean the bond will expire on that date whether or not the advanced payment has been fully repaid or not. So, make sure you complete the long stop date with caution because if it does fall before the advanced payment is repaid, the bond will fall away and there'll be no protection for that remaining element of the advanced payment that is still to be unpaid. So, that wraps up the section on advanced payment bonds and I'll pass over to Kirsten.

Thanks, Claire. Um, so good morning everyone. Um, and thank you for staying with us this far. Um, so as Jane mentions, I'm Christine Milan. I'm a partner in the construction infrastructure and projects team here at Broadies and I'm drafting and negotiating construction contracts on a daily basis. So my topic this morning of the commercial payments bill to conclude our webinar is one that I expect to impact every day in the near future.

This piece of legislation when enacted will represent the most significant reform to construction payment law since the housing grants construction and regeneration act 1996 itself. And that's not hyperbole. The bill fundamentally changes the landscape for retentions, payment periods, and enforcement in construction contracts across the UK, including Scotland. This morning, I'm going to take you through the key reforms, some practical implications for your contracts and businesses, and what you may be thinking about now to do to prepare.

So, why does it matter first of all though? Well, as we know, late payment remains endemic in the UK construction supply chain. It's the single biggest cash flow pressure facing subcontractors andmemes in our sector. So on the 24th of March 2026, the government announced what it called its toughest crackdown on late payments in over 25 years. Next slide, please. The commercial payments bill was then introduced to the House of Lords on the 19th of May 2026 and it has rem moved remarkably quickly um through the House of Lords.

So the first and second readings are already complete and next it's going to undergo a third reading in the lords before moving to the house of commons and the small business commissioner has publicly stated that she's hoping for royal ascent in early 2027 after which secondary legislation will be needed to bring all aspects into force. This is a devolve matter. So the Scottish Parliament does need to consent. Um the original legislative consent memorandum was lodged with the Scottish Parliament on the 19th of June this year and the Scottish government has recommended that Parliament give its consent.

So we're not anticipating that that is going to be a barrier. Importantly, the direction of travel hasn't changed. During the second reading debates, the government confirmed it's not proposing any exceptions to the retention ban. So the next slide is your road map for the uh next few minutes. Um the bill covers five main areas. Firstly, we've got a ban on retentions and construction contracts and that's going to be phased in over the approximately 3 years.

Second, a 60-day cap on payment periods. um with that being 30 days for public authorities. Third, there's a new statutory minimum for pay less notices. So, it'll need to be at least 7 days before the final date for payment. Fourth, mandatory statutory interest at 8% above the Bank of England base rate. And fifth, punitive penalties for non-compliance, so up to 50% of the unpaid debt. And there are also some new powers for the small business commissioner and amendments relating to public procurement.

So I'll cover each of these in turn. So moving to the next slide and the retention ban that really is the headline reform. So let's walk through the mechanism carefully. So, the bill is going to amend the construction act and it's going to introduce a 2-year transition period beginning when it comes into force. And during that period, retentions can still be collected, but they become transitional retain sums. That includes retentions held under pre-existing contracts.

So, contracts that would be held um before the act comes into force could could still be caught by that depending on the length of program. After the transition period ends, no new construction contract can contain a retention clause and any such clause including any variation to a retention clause will be void. Then one year after the transition period has ended, we reach what the bill is calling the last retention day.

And from that date, all retention clauses, including those in pre-transition contracts, become ineffective. Conditions for release of retained sums also become void. The money simply becomes due. The government's position on this is unequivocal. Lord Long speaking for the Department for Business and Trade at the second reading stated that retentions are neither an effective means of preventing defects nor remediating significant problems.

He cited the Judith Hackett report that retentions create tension and undermine the delivery of safe and highquality buildings and no exceptions are proposed. Now I know some people might be concerned about quality. Um and I think that is something that that that will need to be worked through in practice. At the moment the government is pointing to the building safety act 2022 framework which obviously mainly has impact in England and Wales. um and apparently is working with the construction leadership council and the get it right initiative on practical approaches to improving quality without retentions.

So I thought it might be useful if we put some illustrative dates on this and the next slide has those. Now this is assuming a hypothetical commencement date of the 31st of March 2027. So if we assume that date that the bill comes into force on that date that would then be the beginning of the transition period that then means that on the 31st of March 2029 the transition period would end. So that's two years later so there would be no new retention clauses from this date.

The 31st of March 2030 would then be the last retention day. So all retention clauses and all contracts at that date would become void. And then the 30th of April 2030, so 30 days after that last retention day would be the payment due date for all transitional retained sums. And then the final dates for payment of those sums would be another 30 days later for the public authorities and then 60 days. So the 20 that would be work out as roughly the 29th of June 2030 for everybody else.

Now obviously those dates are illustrative. It all depends on when the bill or indeed the the relevant section um of the act relating to retentions come into force. But the small business commissioner stated hope for Royal Ascent in early gives you an idea of the likely trajectory. So what happens if retention debts go unpaid after the transition? The penalties stack up and they're deliberatively punitive. Next slide, please.

So, you would be facing a fixed penalty of 4040 or 50% of the retention debt, whichever is the higher. There also would be statuto compensation if the payment that's in relation to the payment being late. And also, you would have your statuto interest at 8% above base rate. And you can't contract out of any of this. It's also worth noting that the definition of retention in the bill is broad. So it catches any sum equating to a percentage of an amount payable deducted until a condition for release is met.

So what does that mean in practice? Well, what that means is that it might catch provisions that aren't labeled as retentions. So for example 10% held back until a performance bond is delivered or conditional deductions like to milestone completion. Sometimes there might be percentages in relation to delivery of subcontractor collateral warranties for example. So all of those conditional deduction mechanisms will need to be reviewed not just clauses that use the word retention or there's a sort of retention in the typical way that we would um understand it.

So moving then to payment terms, the bill introduces a mandatory maximum. The final date for payment must fall within 60 days of the due date for private sector contracts and 30 days for public authorities. And any contractual term that exceeds those limits is void. And so for construction contracts, the scheme of construction contracts would then be implied in and that would set the final date at 30 days. That's also codifies the government's existing prompt payment policy into statute for public authorities.

Now what I would note is that during the Lord's debates actually the weather amendments proposed to shorten that um cap from 60 days for the private sector contracts to 30 or 45 um those weren't taken forwards um at the moment and there were some people that felt that actually that 60-day cap um might actually represent a backward step for construction um with a lot of standard forms although already paying well within that that payment period And there is a concern from some people that actually that cap could inadvertently legitimize longer periods than are currently normal in certain areas of the sector.

So that is worth keeping in mind. Moving on then to pay less notices. This is quite a simple change but it does have significant practical implications. So the bill directly amends section 111 of the construction act. Um, and it requires that PLS notices are going to be have to be issued basically at least 7 days before the final date for payment. So that's a fixed statutory minimum and that replaces the current wording of not later than the prescribed period.

So why does that matter? Well, a lot of contracts, particularly bespoke subcontracts, currently allow 1 to 3 days. and even the JCT and SBCC at the moment specify only 5 days. So all of these will need to change. And in relation to the JCT and the SBCC contract, it's quite common to see that amended in schedules of amendments to a period between 1 and 3 days. And that will definitely no longer be permitted. That means that the smash and grab risk remains just as acute.

If your pay less notice is issued after that 7-day deadline, then it's invalid. the full notified sum will become payable. So that exposure hasn't gone away. It's simply been recalibrated. Moving on then briefly just to statute to the interest. So the bill introduces a mandatory rate of 8% above the Bank of England base rate for late payments in all contracts including construction. It occurs from the day after the final date for payment and you can't contract out of it.

So at the moment there is a default rate of 8% for for commercial debts in terms of the late payment act but at the moment you can contract out of it and as you'll be aware many contracts do indeed contract out of of that um of that actual particular rate. Um so to put that in context the base rates if the base rate for example um is 4.5% then the statutory rate would be 12.5%. Um and that's in comparison to for example JCT and SBCC that currently provide for 5% above the base rate with NEC.

Um you'll be able to state that in the contract data um currently at the moment but as I say once the act comes into force then that will just need to be 8% above the base rate. Um the next slide just covers the small business commissioner and public procurement. So there was a concern about whether the new SPC powers would overlap with construction adjudication. Um and the answer basically is that for construction contracts um that won't be the case.

So there is an adjudication scheme that's brought in for other contracts but um we for construction contracts still have our statuto adjudication under the construction act. But the commissioner is going to have power to investigate persistent failure to pay suppliers. Um and that does apply to construction. It is targeted at larger businesses. So typically those with more than 50 employees. But for those of you in larger contracting organizations, then the investigation power is one to watch out for.

Um I mentioned public procurement there as well because the amendments within the House of Lords most recently introduced new provisions into the procurement act 2023 just really align the public authority payment terms um with the bill. Um and it remains to be seen whether we'll do the same in Scotland but um it probably is the case that that that will be done as well. So what does that mean for the standard forms that you use every day?

Um next slide. Thanks. So for JCT and SBCC then retention provisions are currently generally um 3 to 5%. So those will need to be removed entirely from new contracts post the end of the transition periods. um and they're going to become void in existing contracts after the last retention day. Payment periods in terms of the unmened contracts, then that's currently 14 days from the due date for the inim payments. So that's already well within the 60-day cap.

Pay less notice periods will need to increase from 5 to 7 days and the interest rate will need to increase from 5% over the base rate to 8%. for the NEC4. Um, option X16, retention, you won't be able to use that after the end of the transition period. Um, the payment assessment periods, they're probably already compliant. Um, the interest clause and the contract data will need to meet the new statutory minimum. Um, and in relation to the pay less notice, actually YUK2 currently complies with that, but again, that is sometimes amended.

So, you'll just need to be careful about that as well. So what should you be doing now then? Well firstly you could be thinking about auditing your current contracts, identifying contracts that contain retention provisions and mapping your exposure against a transitional timeline. Where you're dealing at the moment with contracts that have got programs of less than 12 months, maybe defects liability periods of 12 months with related retentions, then those aren't going to be impacted.

But in a couple of years time, if you're using repeat contract terms, then they are going to need to change. And for contracts where the pre-construction phase is quite long and the construction phase itself is a few years, then this is going to impact. Secondly, in due course, you're going to want to review your standard amendments. Get ready to update pay less notice periods to at least 7 days. Interest rates will need to increase to at least 8% over base rate.

And prepare to remove retention clauses. So at the moment then we want to consider alternatives to retention performance bonds, retention bonds, payment company guarantees, some sort of escrow or trust fund arrangements. But to be honest, I do think this is a tricky one and this is one that the industry is going to struggle with. Um, as you'll all be aware, the bond market remains difficult. I'm not really anticipating the bond market is going to get much easier over the next few years.

The government has acknowledged that. It says it's working with the insurance sector, but I think it has to realistically be the case that bonds may not be available or affordable for all contractors, particularly that tension hasn't been resolved and it remains to be seen what the the best um solution is there. Fourthly, um this is one that people might miss um but really important for main contractors um and and other subcontractors is the subcontract trap.

So if a contractor enters into a subcontract after the end of the transition period, it can't include a retention clause even if the head contract that was entered into before the end of the transition period contains one. You can't pass retention down. So, it is going to be important to to understand when those periods kick in um and make sure that you're not going to be caught out by that. Finally, um watch out for the updated standard forms.

Um I'm I'm sort of envisaging in relation to the the standard forms that we'll probably see that happen by way of addendum um a lot closer to the time that the the provisions actually um really begin to to kick in. But it's worth your project teams, so contract administrators, finance teams, Qs, etc. understanding the new deadlines once we've got certainty as to to what they are. I'm conscious of timing, so I won't go through the next slides.

That's just um practical takeaways um just with the the key messages, but you'll have that um for next time when you get sent copies of the slides. Um, so I would just thank you for your time this morning and I'm going to hand back to Jane just to see if we've got um any questions that we're able to cover um in the final minute or so. Thanks. >> Thanks Christine and thanks to all the speakers and we are a bit limited for time but I might ask one question of Craig if I can.

There's been a number of questions come through for those who have raised questions. We will get back to you separately if we don't don't get a chance to cover them today just because of time. Um big the question is um are off-site materials bonds relevant in Scotland? >> Uh okay. Yeah. So that was one of the points that I drew out in the talk today is that in Scotland um the SBCC forms of contract don't have uh a form of off-site materials bond whereas in England the JCT contracts do.

I think it is relevant consideration in Scotland and it really depends on the the factual situation. So for example, if you had materials that were located out with Great Britain overseas somewhere on the continent, I think the the risk increases there or if there's quite a long time period between the time when you're paying for the materials and them landing on site again the risk um increases there. So I think in those type of situations you should be looking at whether um a bond is something um you'd want to add to your security package.

So I do think it is relevant but it depends on the um the risks involved in the particular transaction. >> Great thanks Craig very succinct answer then as well during the timing and thanks Craig and thanks again for other questions we will address them. Just a thank you to everyone for your time and attention today. And if you have any follow-up queries on any of the content today, all of our contact details are online on the Broad's website.

Um, a recording of this will be made available. But yes, thanks for your time and attention and see you soon. Bye.