On Tuesday 19 May 2026, the Department for Business and Trade (DBT) announced that the Commercial Payments Bill (the Bill) had been introduced in the House of Lords.
The Bill sets out to implement maximum payments terms, strengthen late payment penalties, give stronger powers to the Small Business Commissioner and (importantly) ban retention practices in construction.
Following our previous examination of the direction of the consultation on late payments (which can be viewed here) we now, for the first time, can see how this is going to be translated into legislative intent.
While the Bill introduces many new reforms in the sphere of payments under both commercial and construction contracts, we shall focus on one of the key aspects on the construction side, the banning of retentions.
While the question of scrapping retentions is not a new one (see our thought leadership on this issue from May and June 2018) this still represents a major shift away from the long established industry practice.
The unexpected Bill
The swift arrival of the Bill was somewhat unexpected.
In just 10 months the DBT has gone from launching a consultation on late payments to publishing the Commercial Payments Bill.
In the DBT's consultation response 'Time to pay up', published in March this year, it said it would progress reforms as soon as parliamentary time allowed. However, it wasn't clear just how soon parliamentary time may allow for such a historic Bill to be introduced.
The DBT also stated in its consultation response that it would consult with interested parties on the impacts of any ban on retentions before making a decision on implementation, which has not yet occurred.
Understandably, much of the construction industry did not expect to see a blanket ban on retentions without this further consultation and so the marching forward of the Bill at the rate it has is a surprise.
Retentions on the ropes
Retention in construction contracts is on its way out, if the drafting in the Bill remains as is during its passage through Parliament. The Bill introduces 6 pages of amendments to Part II of the Housing Grants, Construction and Regeneration Act 1996 (the Construction Act). To demonstrate the scope of these amendments, Part II of the Construction Act is currently just 14 pages.
The Bill introduces a transition period whereby retention clauses remain lawful for the first two years from commencement (the Transition Period). Once the Transition Period has expired, no new retention clauses can be agreed.
Additionally, after the expiry of the Transition Period, the parties will be prevented from agreeing variations to an existing retention clause, if such variations would make the retention clause less favourable to the payee. Any variations agreed by the parties after the Transition Period which make the retention clause less favourable to the payee, will be void. If the variation makes the retention clause more favourable to the payee, then it remains permitted (until the Last Retention Day).
Three years after commencement (the Last Retention Day), three important things will happen:
- any retention clause will be entirely void;
- any terms or clauses within a construction contract or related agreements providing for the treatment of sums deducted or retained under a retention clause will also be void; and
- any sums deducted as retention during the three years after commencement ("the transitional retained sum") shall be paid to the Contractor within the timescales provided for in the Bill.
Payback time?
Additionally, the Bill creates the concept of a "retention debt". This is a debt that arises where money is withheld from a payee as a retention, in breach of the obligations in section 111 of the Construction Act to pay a notified sum.
The proposed new section 113E of the Construction Act creates an implied term that if a retention debt arises after the expiry of the Transition Period, the party to whom the retention is due is entitled to recover a fixed sum in relation to this debt (as well as, of course, the debt itself).
There are a few key points to flag in relation to this provision:
- The amount of this fixed sum is £40, or 50% of the retention debt – whichever is higher.
- Before the end of the Transition Period, the parties can still agree retention clauses. If they agree such a clause before the end of the Transition Period, the clause will only become void following the Last Retention Day (a year later).
However, if any retention is withheld / deducted between the end of the Transition Period and the Last Retention Day, in breach of the obligations set out in section 111 of the Construction Act to pay a notified sum, then it will become a retention debt and a fixed sum will be payable to the party to whom the retention is due. - Payees who have had retention withheld or deducted after the Transition Period can still pursue any other remedies they may have in addition to receiving the fixed sum (such as statutory interest).
- Any contract term that seeks to exclude or vary this implied term will be void.
Is it a 'tomorrow problem'?
While late payment reform seems to have got off to a blazing start, there is the possibility that things could slow down slightly as the Bill passes through Parliament.
The Bill must still make its way through the House of Lords and then the House of Commons before receiving Royal Assent. Changes to the Bill may be made throughout this process and the final Bill may be quite different to the current version.
In terms of timing, it is not expected that the Bill will receive Royal Assent until 2027, at the earliest. There is then the question of implementation.
There was a 21-month period between the Construction Act being granted Royal Assent and the commencement date for Part II, and 17 months following the Building Safety Act receiving Royal Assent until the Building Safety Regulator building control regime officially commenced.
It should also be noted that there is a two-year transitional period leading up to the coming into force of the retentions ban. Given this, we may not see a ban on retentions fully in force until 2029.
Leading up to this, we are likely to see a flurry of activity from industry bodies, such as the JCT and NEC, which will have to issue amendments to their standard form contracts.
This certainly isn't the last time you will hear from us on the Commercial Payments Bill, and there will be more to say on the issue of retentions, so watch this space for further thought leadership and horizon scanning from Trowers cross-sector teams.
