The government has launched a consultation on providing business representative bodies with additional powers to challenge “grossly unfair” contractual payment terms and practices. The additional powers could potentially allow sub-contractor trade bodies to bring their own court proceedings to challenge main contractor payment terms on behalf of their members. 

The consultation follows an EU Directive requiring the expansion of the powers of representative bodies to launch challenges on behalf of all business, rather than just SMEs, and in relation to anypayment terms or practices deemed “grossly unfair”.

The consultation also seeks views on whether to define “grossly unfair” in relation to late payments, recognising that payment terms vary from sector to sector. For example, what may be considered “grossly unfair” in the retail sector might not be considered as such in the construction sector. 

The consultation is part of the government’s ongoing attempt to improve payment practices between businesses. It is set against the statutory framework that already exists under the Late Payment of Commercial Debts (Interest) Act 1998, where the key provisions include an entitlement for businesses to charge interest on late payment at 8% above the Bank of England Base Rate, and mandatory maximum payment terms between businesses of 60 days. 

The consultation seeks views on:

  • Which business representative bodies can issue a claim based on “grossly unfair” payment terms.
  • The advantages of disputes being resolved in court to afford a wide range of remedies, for example, issuing an injunction against a business with “grossly unfair” payment terms.
  • The resources available to representative bodies to bring a case.

The enhancement of the definition of “grossly unfair” by way of indicative criteria. 
The consultation is open until 9 March 2015. The intention is that regulations will be drafted based on the responses received and the government will consult on those regulations in summer 2015.