The retentions ban is meant to help subcontractors. Most contractors say they will tighten up instead.

The Commercial Payments Bill will ban retentions and cap payment terms at 60 days. Good news for subcontractors. But 63% of contractors say they will vet SMEs harder in response, and your own aged debt is about to become someone else's risk assessment.

If you are a specialist contractor, the last few months have brought the best legislative news in a generation. The Commercial Payments Bill would ban retention clauses outright, cap payment terms at 60 days for large firms and 30 for public bodies, and put mandatory interest on late payments at 8 per cent above base. The government is calling it the toughest late payment regime in the G7.

Retention has squeezed the industry since the Victorian era. Somewhere between £1.6 billion and £3 billion of contractors' cash sits withheld at any one time, and around 44 per cent of contractors have had retention money go unpaid over a three-year period, usually because someone up the chain went under before releasing it. Banning it is the right call.

So here is the uncomfortable part.

Sixty-three per cent are planning to vet you harder

Rider Levett Bucknall surveyed contractors for its 2026 procurement trends report and found that 63 per cent expect to apply more stringent performance criteria to SME subcontractors once the legislation lands. Almost half, 49 per cent, said they would put security measures in place with their supply chains. Another 43 per cent said the ban would shift focus onto quality of delivery.

RLB's own warning is blunt:

Without markets adjusting, the ban may have the unintended consequence of throttling the market for SME businesses as clients and main contractors alike become increasingly wary of the supply chain's financial standing and insist on bonds.

Read that middle phrase again, because it is the one that matters: increasingly wary of the supply chain's financial standing.

Why this is rational, not villainous

It is tempting to read this as main contractors looking for a workaround. Mostly it is not. Retention was doing a job for them, badly and unfairly, but it was doing one: it was security against defects and against a subcontractor disappearing mid-defects-period. Take that away and they will replace it with something else.

That something else is retention bonds, tighter prequalification, and a much closer look at whether your business is financially solid enough to still be around when the snagging list arrives.

And not everyone in the supply chain thinks that is a bad thing. Murray Ambler-Shattock of KM Holdings Group, a civils SME, told Construction News the reforms put the focus on quality at the point of delivery, "which is how it should be":

Companies need to improve their vetting and checking, as it's generally slipshod. Increased subcontractor vetting is badly needed anyway and will better filter the wheat from the chaff.

He is right. The question is which side of that filter you end up on.

Your aged debtors are about to become someone else's risk assessment

Here is the bit nobody is talking about. If main contractors start assessing the financial standing of their supply chain, the things they will look at are your accounts, your working capital, and how well you actually collect what you are owed.

A subcontractor with £80,000 sitting in invoices over 90 days old does not look like a subcontractor with £80,000 in the bank. On paper, one is a going concern and the other is a risk. Same work, same quality, same people. Different collection discipline.

That has always been true for your bank manager. It is about to become true for the person deciding whether you make the tender list.

What the government data actually says

While the Bill has been going through the Lords, the Department for Business and Trade published its annual payment practices figures. For 2025:

Large construction firms paid one in seven invoices late, 14 per cent, against 15 per cent across all large businesses.
Construction took a median of 33 days to pay suppliers, one day slower than the all-sector average of 32.
Late payments made up 13 per cent of the total value of invoices paid by large construction firms.
Manufacturing was the worst performer at 45 days and 21 per cent late. Finance and insurance were the quickest at 21 days.

Two honest readings of that. The first is that construction sits mid-table, not bottom, which is not the story the industry usually tells about itself. The second is that things are genuinely improving: since reporting began in 2018 the median has come down from 35 days to 32, and late invoices have fallen from 25 per cent to 15.

That is real progress. It is also cold comfort when you are the one waiting, and it does not change the fundamental timing problem below.

The law is not coming in time to help you this year

The Bill completed its Lords committee stage on 21 July. It still has report stage, third reading, and the whole Commons process ahead of it. On the government's own account the 60-day cap starts no earlier than 2027, with a transition period after that.

So the realistic timeline is roughly eighteen months of the current rules, during which the people who will eventually be regulated are already deciding how they will respond.

What to do in the meantime

Nothing here requires the Bill to pass. All of it makes you harder to screen out when it does.

Get your own aged debt down. This is the single highest-value thing on this list. It improves the cash position, the accounts and the risk profile that someone is about to assess. It is also the one entirely within your control.
Log every retention as a debt on day one, with its release date and trigger. Retention that goes unclaimed does not just cost you the money, it makes your receivables look worse than your business actually is.
Know your Construction Act dates. Payment notice, pay-less notice, final date for payment. If no valid pay-less notice landed in time, the notified sum is payable in full. That turns a favour into a contractual entitlement.
Tidy the paperwork now. If prequalification is about to get stricter, accounts, insurances, accreditations and references are what you will be judged on. Nobody has ever regretted having these ready early.
Understand retention bonds. They are financial guarantees used in place of cash retention. The bonding market is expected to bring out new products, and being the subcontractor who already understands them is a small competitive edge.
Chase consistently, not occasionally. Consistency is what separates firms that collect from firms that hope. It is also what the new regime will reward, because interest at 8 per cent over base only helps you if you are actually tracking what is late.

The uncomfortable summary

The retentions ban will put money back in specialist contractors' hands. It will also make main contractors more selective about whose hands those are.

The firms that come out ahead will not be the ones who waited for the law. They will be the ones who used the next eighteen months to get their collections in order, so that when someone finally checks their financial standing, there is nothing there to worry about.

The legislation can stop your money being withheld. It cannot make someone pay you on time, and it cannot chase them for you.

That is what we built Penny for. She watches every invoice and every retention release date, chases the overdue ones by email and text, and when someone keeps ignoring it, she picks up the phone. You get on with the job, and the money still comes in on its own.