With the number of adjudications in the construction industry on the rise, and the number of insolvencies reaching unprecedented levels, the issue of fair and prompt payments has never been more relevant. It’s therefore unsurprising this was a hot topic at this year’s Construction Wave CFO Summit in London.

One of the most keenly listened to and engaged with discussions was the panel debate that focused on the Fair Payment Code and whether it was helping those in the industry.

The talk, entitled ‘the Fair Payment Code: A Cure or a Band-Aid for Construction Finance?’, was led by Rob Driscoll, Director of Legal & Business (General Counsel) & Association Secretary at the Electrical Contractors’ Association and advisor to the government, and Christina Wilson, Finance Director – Construction Services at Sisk Group.

Replacing the Prompt Payment Code, the Fair Payment Code was introduced in December 2024 to help smaller construction firms identify reliable and trusted partners while tackling the issue of lengthy payment terms and late payments.

This came after many small and medium enterprises (SMEs) appealed for a more robust, ambitious, and aspirational approach towards business-to-business payment culture. However, despite its transparency and competency benefits, take-up has been slow. Indeed, Christina Wilson revealed very few companies that had previously signed up to the Prompt Payment Code had re-signed up to the Fair Payment Code.

With that in mind, the question was raised, ‘Is the Fair Payment Code helping?’

Both Christina and Rob spoke positively about the potential of the FPC but raised certain concerns about the use of it in its current form and detailed the various reasons why adoption had been minimal so far.

Indeed, it was revealed there had been a lack of trust in the Prompt Payment Code and as such, it had been abandoned due to the need for ongoing monitoring and enforcement. Consequently, those in the industry had been hesitant to sign up to the Fair Payment Code. Additionally, with the scheme being entirely voluntary, and requiring additional time and resources to report on small payments, people had questioned why they should sign up to something that took up even more of their precious time.

The prioritisation of cash protection

With the UK currently in the midst of a cost-of-living crisis and the construction industry witnessing many companies becoming insolvent in recent years, many quantity surveyors, contractors, subcontractors and SMEs are focusing more on protecting their cash.

Indeed, there is an increasing hesitation to part with cash in case of project delays – often, if things go wrong on a project, people will hold back from paying until the issue has been rectified.

Similarly, some owners of companies and contractors may prefer to keep money in their accounts so that they look financially healthier. In either case, this can then lead to payment delays or people not being paid the amount they requested.

People aren’t inspired to volunteer

While the Fair Payment Code is a great idea in principle, the fact it is not legally mandatory means businesses, subcontractors, and contractors have the freedom to disregard its principles.

Consequently, as highlighted by the thought-provoking discussion at the CFO Summit, this can undermine its effectiveness. Additionally, while the prospect of being on the code is a nice lure, it still lacks a crucial push factor – such as making participation in the scheme mandatory for large businesses.

Indeed, the current lack of enforcement means there is no consequence for failing to meet the requirements. As such, it needs a robust legal framework to enforce its rules more effectively.

Perceived lack of value

There is also a common misconception about the benefits, or lack thereof, of joining the Fair Payment Code. Indeed, many businesses across the construction industry may not see the immediate advantages of joining the scheme – especially larger companies with established payment processes.

This may, of course, stem from the perception that the FPC primarily focuses on supporting SMEs.

Administrative challenges

For many subcontractors, contractors, and SMEs, attempting to deal with the administrative burden of adhering to the FPC’s requirements may prove too challenging and time consuming.

With maintaining accurate records of payments and ensuring timely payment often taking up several hours of a day and requiring various members of the team, it’s perhaps unsurprising to learn that many companies are hesitating to sign up to the FPC.

Finding the right balance

As Rob Driscoll highlighted during the FPC-focused talk at the CFO Summit, there is no silver bullet when it comes to fair and prompt payments. However, it’s essential that those in the industry strike the right balance between quality and risk appetite.

While the FPC was brought in to tackle the issue of late payments and lengthy payment terms, it’s important to appreciate that each contractor, subcontractor, SME owner, or quantity surveyor will have different levels of risk appetite.

In fact, while organisations and individuals with a higher risk appetite will be more willing to choose payment terms that involve early payments or percentage payments before completion, those with low-risk appetite will prioritise risk avoidance and adopt more cautious payment strategies.

With this in mind, it’s important for all involved in financial management to establish clear payment terms and standards and ensure open communication to manage risks throughout any project.

Early collaboration is key

Having cohesion between all involved in financial management will play a major role in improving the speed and fairness of payments between contractors, subcontractors, and quantity surveyors. As Rob and Christina discussed, even the biggest construction firms are only as strong as the supply chain – so streamlining the payment process and having better collaboration will make a huge difference.

Similarly, there must also be a more cohesive approach taken by industry leaders and the government. Working closely with policy makers will further help to define what exactly a fair payment is and how ensuring compliance can be made easier.

Simplifying the process

One of the key topics of the discussion was the importance of changing payment culture, but both speakers highlighted how this was going to be a significant challenge. Many contractors and subcontractors are still hesitant to sign up to the FPC, so making it intuitive and simplifying the process could provide the encouragement many need to take the step forward.

As Rob Driscoll correctly stated, there is so much opportunity for change. So, making the FPC simpler and making it quicker and easier for companies and individuals to be paid on time will be crucial. Of course, that will be easier said than done but something entirely necessary.

Encouraging internal champions

With educating people across the built environment on the importance of fair and prompt payments absolutely essential, Rob and Christina discussed the benefits of encouraging internal champions in businesses.

In addition to training others and providing ongoing support, doing so can smooth the path for payment processes, promote enthusiasm towards the FPC, and drive internal buy-in to ensure a better understanding of just why fast and fair payments are crucial for the industry.

While it’s early days in the FPC’s lifespan, it certainly has the opportunity to foster change in the built environment. However, more businesses, contractors, and subcontractors must be encouraged to sign up to the Code – and that comes through increasing awareness, simplifying the process, and challenging the misconceptions of poor value and reduced enforcement.