Late payment practices in construction must be addressed as a top priority

Last week the European Construction Sector Observatory published an analytical report on “Late payment in the construction sector”, looking in detail at the situation in five countries (France, Ireland, Italy, Spain and the United Kingdom) and concluding that late payment practices strongly and negatively impact construction businesses, specifically jeopardising construction SMEs, as well as European economies in general.

EBC warmly welcomes this report, because it gives a better look at the specific situation in the construction sector, displaying one of the sectors most affected by late payment practices. Indeed, late payment in construction remains a major issue both in Business-to-Business and Public Authority-to-Business relations, whether due to the long and interdependent supply chain, the imbalance of power between undertakings or the frequency of disputes that are inherent to the sector.

The report also underlines that 56% of the SMEs in the construction sector either occasionally or regular experienced problems with late payments in 2018, making them the most exposed of all European SMEs. In fact, construction SMEs, displaying around 99.9% of the enterprises in the sector, in particular suffer from the late payment situation. The reason is that they are very seldom at the top of the supply chain and usually in the weaker position in business relationships, making them vulnerable to unfair long payment terms and late payment, which cause a huge administrative and financial burden that can lead and has led in the past to bankruptcies and the loss of jobs.

Therefore, EBC is glad that in line with its own call for a recast of Directive 2011/7/EU, the report emphasises that although the Directive developed a comprehensive regulatory framework, it should be better enforced, promptly and effectively. Three main aspects are named at particularly hindering the effective implementation:

  • the possibility to derogate payment deadlines to pay late without legal consequences;
  • the possibility to extend the verification process to artificially extent payment periods; and
  • the voluntary waiver to remedy measures that puts pressure on enterprises in unequal power relationships.

“Unfair long payment terms and late payment in construction are the rule rather than the exception in many countries. What we need is a stronger and well implemented legal framework to close the loopholes that allow dominant actors to use their power position to the disadvantage of others, especially harming our construction SMEs. In addition, measures easing the situation of SMEs that face late payments and supporting them through training should be established”, highlights Eugenio Quintieri, EBC Secretary General.

To read EBC position paper on the Late Payment Directiveplease click here