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Updating EU rules to combat Late Payments

Date

19 Mar 2024

Sections

InfoSociety

FIEC is supportive of clear rules aimed at fostering and safeguarding prompt  payments in all commercial transactions while also minimising the administrative  burden for all parties involved in a commercial transaction. While the current EU  rules on combatting late payments have been in place since 2011, construction  companies, including those working with the public sector, are still confronted with  the problem of late payments.  

Ahead of the vote in European Parliament’s IMCO1 Committee, FIEC reiterates  its reservations against the introduction of certain provisions related differentiated payment periods according to the size of companies, payments to subcontractors  in public procurement, on enforcement authorities, complaints and confidentiality and reporting obligations.

Why is FIEC dealing with this topic? 

Late payments have the potential to threaten the very existence of construction companies, as a  positive cash flow is essential to their day-to-day operations. Another issue, construction  companies usually bear the costs of the construction process (materials, machinery, labour, etc.)  before they are paid.  

A major concern in many EU countries is that construction companies working with the  public sector are often not paid on time, even where payment terms are provided for in existing  legislation. Companies in this situation are often reluctant to take legal action against the public  sector client. Ensuring that contracting authorities – whether they are public or private – pay on  time is not only essential to creating a prompt payment culture, but has an impact on payments  down the entire supply chain. Prompt payment should therefore be a legally enforceable principle  in all transactions.  

State of play 

In September 2023, the European Commission proposed to replace Directive 2011/7/EU (Late  Payments Directive) with a Regulation. FIEC believes that it is crucial to ensure a careful balance  between creating a level playing field in the EU and better protecting construction companies byproviding clear payment terms, while at the same time ensuring that "contractual freedom" in  commercial transactions is respected. 

The two co-legislators are currently examining the file. Both are divided on some aspects of the  Commission's proposal. In the EU Council, many Member States appear to be highly critical of  the proposal as a whole. One provision reportedly causing disagreement is the 30-day payment  period applicable to all businesses, which FIEC believes should be maintained when the  debtor is a public authority. The European Parliament was due to vote on amendments at the  end of February, but the vote was postponed to 20-21 March. 

Key messages ahead of vote in IMCO Committee  

Ahead of that vote, FIEC reiterates reservations against the introduction of the following  provisions, namely: 

Differentiated treatment depending on the size of companies  

The draft report includes a number of amendments that would differentiate payment periods  according to the size of the company. FIEC warns that such an approach could make commercial  relations more complex and affect SMEs' access to public contracts, if contracting authorities are  able to pay large companies over a longer period than SMEs. 

Payments to construction companies only after payments to subcontractors in  public procurement?  

Under the proposal, construction companies will face more red tape, unjustified discrimination  and further delays in public procurement payments, if the main contractor will be required to verify  the preceding payment of its subcontractors, before being allowed to claim payment from  contracting authorities. The goal is to ensure that payments in public works contracts are passed  down the supply chain. But FIEC warns that this obligation threatens the financial liquidity of sound  construction companies, risks creating legal uncertainty and additional administrative, financial  and time burdens for both the contractor and the contracting authority. Moreover, this obligation  does not provide a solution for a strict mechanism to ensure that public authorities actually pay  on time. 

Enforcement authorities, complaints and confidentiality  

The proposal also requires Member States to designate national authorities responsible for  enforcing the Regulation. But it does not explicitly require them – once designated – to take action  against public sector clients who fail to pay companies on time. There are also concerns in the  construction sector that setting up a parallel system to the courts would create confusion and  bureaucracy. FIEC considers that it should be left to Member States to decide what system to  use, as long as it is consistent and applies the same way for public and private contracting  authorities. 

Reporting obligations 

Lastly, FIEC also rejects the introduction of annual reporting obligations only on companies'  payment practices as this would only increase the administrative burden for all parties involved.

 

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