A “Construction Code of Conduct” would be similar to the Groceries Code Adjudicator, the supermarket watchdog designed to stop retailers treating suppliers unfairly, MPs said.
The review into the late payment of commercial debts made 11 recommendations to crack down on the estimated £30bn that is owing to small and medium-sized businesses, reports The Telegraph.
It found that “the manufacturing and construction sectors are the worst offenders” for late payment and associated poor treatment of suppliers.
“In view of the evidence presented concerning the issues in the construction industry, it was felt that there should be urgent action to address the late payments issue in this sector,” the MPs said.
Rather than simply submitting an invoice, construction suppliers “apply to be paid”. Subcontractors complain that this process is often used as a way of reducing the value of bills regardless of the quality or pricing of work.
Steve Sutherland, a business owner who sacrificed £5m – 40pc of his turnover – in protest at the payment policies of construction giant Balfour Beatty, said the review had provided “the basis and opportunity to bring about the critical first steps of change”.
He added: “I shudder to think what will happen to the UK construction industry and build quality if the proposals in this report are not implemented.”
Other recommendations include forcing large business to publish figures on how long they take to pay their suppliers and barring bad payers from public sector work.
The inquiry, which was supported by small business groups, also called for contractually agreed payments to be held in an independent trust: “Once all the conditions for that contract have been met, the payment can be made to the supplier. A Credit Ombudsman will arbitrate in disputed cases. This will require legislation.”
Tom Blomfield, founder of Go-Cardless, a payments provider, said this idea is “untenable”: “Big businesses just won’t allow their cash reserves to be depleted in that way.”
Instead, small businesses need what he called an “assured payment system”: “Payments would be agreed and set up on commencing work, and then only debited after an agreed term.”
Labour MP Debbie Abrahams, who led the review, said that the late payment issue is “ultimately one of leadership.”
She added: “Until [large companies] make a decision to … treat our small and medium sized businesses fairly, this problem will persist.”