Late payments: EBC welcomes the ambition to empower Construction SMEs and Crafts

Yesterday, the European Commission has taken a significant step towards addressing the challenges faced by small and medium-sized enterprises (SMEs) and crafts in the construction sector by proposing a new Late Payment Regulation (LPR) that will replace the existing Late Payment Directive, in the context of its SME Relief Package. EBC salutes and welcomes this long-awaited proposal that aims to foster a fairer payment culture in the EU, ensure investment capacity to achieve the Green Deal, and strengthen the financial sustainability of construction.

The construction sector plays a crucial role in Europe’s economy, providing jobs and contributing to the development of infrastructure and communities across the continent. However, SMEs and crafts in the construction sector have long been grappling with the issue of late payments, which can have severe consequences on their financial stability and activity prospects, leading even to bankruptcies.

In a recent economic climate where inflation has acted as a fertiliser for late payments, many companies have been forced to accept even longer payments than they are comfortable with. This bad payment culture acts also as an obstacle to the green and digital transition of the EU.

The European Commission’s proposal, designed to address these challenges, introduces a range of measures that will be particularly impactful for SMEs, notably in the construction sector. Key highlights of the proposal include:

  • Directive becomes Regulation: An EU Regulation is a more appropriate tool to combat late payment than a Directive. Indeed, in the past decade we have seen that the Late Payment Directive proved insufficient in combating late payments. A Regulation, directly applicable to all 27 Member States without the need of transposition, equipped with provisions on dedicated authorities tasked with its enforcement at national level, is expected to significantly improve the application of EU rules for SMEs and especially micro companies.
  • 30-day payment cap: The revision proposes reducing payment terms to 30 days in both public administration to business and business-to-business commercial transactions, removing counterproductive exemptions and ensuring that SMEs and crafts receive their payments in a more timely manner. This change will greatly enhance their cash flow and financial stability, dealing with unfair contractual practices due to an imbalance of power. Member States will also retain the possibility to enforce stricter rules.
  • Payments to subcontractors in public procurement: This new provision aims to ensure that payments are passed down the supply chain in contracts for public works, by requiring the main contractor to prove that direct subcontractors have been paid. This is particularly important for construction SMEs who often participate in public contracts as subcontractors.
  • Automatic compensatory fees: The proposal reinforces the right of SMEs and crafts to charge interest on late payments, discouraging payment delays by making it financially disadvantageous for the payers to delay payments. Interest for late payment shall automatically be due when the necessary conditions are satisfied.
  • Removal of problematic concept of “grossly unfair”: A new provision on “Null and void contractual terms and practices” lays down a list of practices that are null and void under the Regulation, replaces the unclear provisions of the current directive and removes the concept of “grossly unfair”.
  • Enforcement authorities: Member States will be obliged to designate national authorities responsible for enforcing the Regulation, who will have to cooperate directly with the European Commission and with other relevant national enforcement authorities. This measure, along with the conversion of the Directive into a Regulation, should guarantee a much-needed stronger enforcement of EU rules on late payment.

Fernando Sigchos Jimenez, Secretary General of the European Builders Confederation, expressed strong support for the proposal, stating, “The construction sector is at the heart of our communities and our economies, even more so in times when our buildings need to become more energy and resource efficient. The European Commission’s commitment to addressing late payments is a positive step that will significantly benefit our SMEs and crafts. Timely payments are essential for their activity and survival, and this proposal demonstrates a shared commitment to their success, that should be matched by the Council and Parliament.

The European Commission’s proposal for a Late Payment Regulation underscores its commitment to relieving all companies from the burdens of late payment, particularly important for SMEs and crafts in the construction sector. EBC will continue to advocate for an ambitious LPR, as the proposal will now undergo scrutiny by the European Parliament and the Council of the European Union.

To read the full press release on EBC reaction to the European Commission proposal for a Late Payment Regulation (LPR), click here.