Breaking Announcement on Payment Reforms – What It Means for Flooring Contractors

The UK Government has recently published its response to the consultation on tackling late payments, setting out a significant package of proposed reforms that could have far-reaching implications for the construction sector and, in particular, for specialist contractors such as CFA members.

At the heart of the announcement is a clear recognition that late payment continues to place unnecessary pressure on small and medium-sized businesses. The Government has confirmed its intention to introduce new legislation, when Parliamentary time allows, aimed at improving payment practices and strengthening enforcement.

The proposed measures include enhanced powers for the Small Business Commissioner, such as the ability to investigate poor payment practices, adjudicate disputes, and issue fines to persistent late payers. In addition, there are plans to introduce a statutory maximum payment term of 60 days (with limited exemptions), mandatory interest on late payments, and new requirements for large companies to provide board-level scrutiny and transparency around their payment performance.

Of particular relevance to the contract flooring sector is the Government’s position on retention payments. The response states that the Government proposes to ban the practice of deducting and withholding retention payments in construction contracts, and that it will consult further on how such a ban would be implemented.

This is a notable and potentially transformative development. While it is important to emphasise that this is not yet law, and that further consultation will determine how (and potentially when) any changes are introduced, the language used does signal a clear direction of travel. The move from previous discussions around reform or protection of retentions to an explicit proposal to prohibit their use marks a significant shift in policy intent.

CFA has long campaigned on this issue, consistently highlighting the impact that retention has on specialist contractors. The organisation comments: ‘Feedback from our members has repeatedly demonstrated the scale of the problem, with substantial sums of money withheld at any one time, often for extended periods and with associated risks where upstream insolvency occurs. We engaged fully in the consultation process in 2025, supported by input from many of our members, to ensure that the voice of the contract flooring sector was clearly represented. It is encouraging to see that the Government has listened to industry concerns and is now considering more decisive action.

‘However, it is equally important to approach this development with a degree of caution. At this stage, the proposal to ban retentions is subject to further consultation, and there is currently limited detail on how such a policy would operate in practice. Key questions remain around how quality and defect risks will be managed in the absence of retention, what alternative mechanisms may be introduced, and how unintended consequences, such as an increase in disputes, will be mitigated. Alongside this, the wider package of payment reforms, if implemented in full, would represent a substantial shift in the commercial and legal landscape. The combination of stricter payment terms, stronger enforcement, and increased transparency has the potential to drive meaningful cultural change across the industry.

‘For CFA members, this is both an opportunity and a period of transition. Improved payment practices and the potential removal of retention could have a positive impact on cash flow and business resilience. At the same time, members may need to adapt to new contractual approaches and ensure that appropriate safeguards are in place. As always, CFA will continue to support members throughout this process. We will remain closely engaged with Government, the Construction Leadership Council, and other stakeholders as proposals develop, and we will provide updates as further detail emerges. Our dispute resolution service and contract and legal helplines remain available to assist members in navigating any challenges.’

Richard Catt, CEO of CFA, comments: ‘For all of the nearly 20 years I have spent at the Contract Flooring Association, and long before that, our members, alongside the wider sector, have been fighting to address the issue of poor payment practices and unfairly withheld retention. We engaged extensively in the Government’s recent consultation that has led to this announcement, with many of our members contributing to ensure the CFA truly represented the voice of the industry. This is a huge moment, and I’d like to personally thank and congratulate everyone who has played a part over the years.

‘Cash flow is the lifeblood of SME’s, and in our most recent member survey alone, CFA members reported over £16 million tied up in retention. Just consider the impact of that money being released back into businesses and the wider economy.’

Click here to visit the consultation outcome.