Local Democracy, Economic Development and Construction Bill [HL]

The noble Lord seeks in both his amendments to protect firms from the effects of insolvency elsewhere in the supply chain. This is a laudable aim, but in seeking to provide this protection for some we must be sure that we do not disadvantage other businesses, be they in construction or other industries. We accept that the construction sector faces difficulties, but it is not alone in that. Other sectors are in the same position. On the point that he makes about the 1996 Act and the reflected view that he now suggests requires us to make these changes, we have consulted the industry extensively on whether there is a better solution than the compromise we currently have in the 1996 Act that would deliver a fairer result for all. There is no clear evidence that the removal of the current insolvency exception will achieve this, so the Government’s view is that the only sensible option is to maintain the status quo. Amendment 217A raises the question of the impact of insolvency which we believe has to be seen on a broader front rather than a narrow one. We therefore have difficulty with the proposal. Both the amendments impact on insolvency. He suggests that we delete the insolvency exception to the prohibition of the so-called "pay-when-paid" clause. Let us be clear that that insolvency exception was a significant part of the compromise that marked the introduction of the 1996 Act. The construction industry is unique in that pay-when-paid clauses are prohibited by statute. The exception is there for good reason. It is to continue to allow construction firms the same protection from the risks of insolvency as businesses in other industries. We need to maintain a level playing field across business sectors. Further, the noble Lord suggests that after Clause 139 we introduce an amendment which provides a statutory right for a firm in a construction supply chain to receive adequate security in respect of the contract. Where no security is forthcoming, he suggests that the payee may suspend performance until it is. In such a case, the payer will have to pay the payee an additional sum reflecting the extra costs which the payee incurs in stopping work. That is a situation that appears to be uncomfortably close to double jeopardy. It is, of course, open to that firm to request such a guarantee during the normal course of business. By making it a statutory right, we would again be creating an uneven playing field between firms in the construction industry and businesses in other industries who have no such statutory right. The practical effect in the case of insolvency is that non-construction creditors could be severely prejudiced and as unsecured creditors there would be fewer assets left to satisfy their claims. Although we share the desire of the noble Lord and those in the industry to look for a fairer solution than the one that we currently have in the extensive consultation neither a better solution nor a consensus to adopt a solution similar to that set out in the noble Lord’s amendment was forthcoming. On that basis, I ask him to withdraw the amendment.