Late Payment of Commercial Debts (Amendment) Regulations 2018

The Late Payment of Commercial Debts (Interest) Act 1998 (Late Payment Act) potentially affects all construction contracts, except those with consumers. Under the Late Payment Act, if parties have not expressly provided for a substantial remedy for late payment under a contract, then there will be an entitlement to claim statutory interest of at least 8% above the Bank of England base rate for any late payment for goods or services. If there is no agreed payment date, statutory interest starts to run after a 30-day period. Once statutory interest begins to run, the supplier is entitled to a fixed sum, in addition to the interest on the debt, and the amount is fixed by reference to the size of the overdue debt. The supplier also has an implied contractual right to be paid the reasonable costs of recovering the debt, less the fixed sum.

The Late Payment of Commercial Debts (Amendment) Regulations 2018 will come into force on 26 February 2018. These regulations aim to give more opportunities to Small and Medium Enterprises (SMEs) to challenge unfair contractual terms in contracts to which the Late Payment Act applies. The new Regulations expand the ability for business representative bodies to challenge the use of grossly unfair contractual terms and practices on behalf of SMEs. Any business will be able to approach representative bodies for assistance whether a member or not. Such bodies will have the flexibility to decide whether or not to take action on behalf of an individual business and not just a group of businesses. Reports by Government and industry bodies show that smaller businesses have a lack of awareness of their rights with regard to overdue amounts or are reluctant to challenge larger entities and undermine commercial relationships. We will see if the reluctance continues or whether the new Regulations will lead to an increase of litigation in relation to the Late Payment provisions.