Local Democracy, Economic Development and Construction Bill [HL]

The noble Lord has characterised the payment framework set out in the Bill as being ineffective by not improving the lot of SMEs in the construction supply chain. As with adjudication, he is concerned that the Bill does not go far enough. I have to repeat that there has been wide consultation, and there has not been a consensus among every organisation offering views. On this issue, perhaps the SEC Group finds itself in a smaller minority than on the adjudication issues. As we said earlier, 99 per cent of firms in construction are SMEs. The main contractor is not always a large firm and the subcontractor is not always a small firm. The legislation will be effective in improving cash flow for SMEs in all sectors of the construction industry. The noble Lord’s amendments suggest two main changes to statutory payment. They create a position whereby only a payee can issue the statutory payment notice and introduce a statutory period within which a notice amending that amount can be revised. The position under the 1996 Act is that only the payer may issue the statutory payment notice. This Bill removes that restriction and allows the payer, the payee or a third party—for example, an architect working for a customer—to issue the notice. We leave it for the parties to agree in contract who should issue the notice. The reason for doing this is to be permissive by allowing a broad range of commercial practices to continue unburdened by legislation. We do not prevent the payee-led process suggested by the noble Lord—far from it; we are expressly allowing it. However, in addition we are allowing others to use processes which reflect their own commercial logic should they see fit. The second main change which the noble Lord seeks is the introduction of a statutory period within which a notice amending the amount in the payment notice may be revised. His amendment suggests that this should be within nine days of the issue of the payment notice. The Bill leaves the timing of this notice as a matter for contract. I will put freedom-of-contract considerations to one side and set out why I believe that the practical effect of such an amendment may be detrimental—indeed, it would be detrimental. Introducing a statutory period within which a sum due can be revised would have the following effects as people sought to protect their own cash flow situation by ensuring they did not overpay. People would simply extend payment periods to take account of the time taken away from them by statutory intervention. They can also be extremely conservative in their valuation of work undertaken. While this intervention may provide the payee with greater certainty of what will arrive in his or her bank account on the final date for payment, it will do so at the expense of extending payment periods and reducing the amount of cash which is actually flowing. The objective of the review of the Construction Act which was announced in the 2004 Budget was to identify what improvements could be made to prevent unreasonable delays in payment. These amendments would have the direct effect of actually increasing delays in payment. The noble Lord raised complexity and the search for a simpler system. Legislation needs to be crafted to incorporate a number of possible scenarios, but the underlying process is a simple one. A payment notice is served, setting out the sum considered to be due; that sum can be revised; and the sum becomes payable. This underlying process will be incorporated into contracts. Contracts will clearly set out who is responsible for issuing the payment notice. I cannot see any complexity in that. Again, the Government are trying to come forward with improvements that are appreciated across the industry. I entirely agree with the noble Lord that the industry is in difficulty in the present economic circumstances, although not uniquely so. I hope, in the light of my response, that the noble Lord will feel able to withdraw the amendment.