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Late Payment in the Construction Sector Analytical Report

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Late Payment in the Construction Sector Analytical Report Late payment in the construction sector Analytical Report European Construction Sector Observatory Late payment in the construction sector Analytical Report April 2020 European Construction Sector Observatory 1 Late payment in the construction sector Analytical Report DISCLAIMER The information and views set out in this Analytical Report are those of the authors and do not necessarily reflect the official opinion of the European Commission. The Commission does not guarantee the accuracy of the data included in this Analytical Report. Neither the Commission nor any person acting on the Commission’s behalf may be held responsible for the use which may be made of the information contained therein. This Analytical Report was drafted prior to COVID-19 pandemic in the EU. Therefore, it does not include the reflection or the analysis of the impacts of COVID-19 on the construction sector, such as related unfair long payment terms and late payment issue. European Construction Sector Observatory 2 Late payment in the construction sector Analytical Report Table of Contents Executive Summary .................................................................................................................................. 6 State of play and impact of late payment ........................................................................................................6 Causes of late payment ....................................................................................................................................7 Policy initiatives ................................................................................................................................................7 Lessons Learnt ..................................................................................................................................................8 1. Setting the scene ................................................................................................................................ 11 Introduction ................................................................................................................................................... 11 Methodology ................................................................................................................................................. 12 Terminology ................................................................................................................................................... 13 2. State of play and impact of late payment ........................................................................................... 15 EU regulatory framework on late payment ................................................................................................... 15 Regulatory framework ............................................................................................................................................... 15 Implementation of Directive 2011/7/EU in EU Member States and in the United Kingdom .................................... 17 Analysis of the Late Payment Directive and its implementation in the Member States ........................................... 21 Takeaways .................................................................................................................................................................. 23 Late payments in the construction sector – state of play ............................................................................. 23 France ......................................................................................................................................................................... 24 Ireland ........................................................................................................................................................................ 27 Italy ............................................................................................................................................................................ 28 Spain ........................................................................................................................................................................... 30 United Kingdom ......................................................................................................................................................... 31 Takeaways .................................................................................................................................................................. 33 Impact on the construction sector ................................................................................................................ 33 Major consequences of late payments ...................................................................................................................... 34 Takeaways .................................................................................................................................................................. 35 3. Causes of late payment ...................................................................................................................... 36 Construction sector characteristics ............................................................................................................... 36 Disputes ..................................................................................................................................................................... 36 Payment process ........................................................................................................................................................ 37 Takeaways .................................................................................................................................................................. 39 Supply chain characteristics .......................................................................................................................... 40 A long and complex construction supply chain .......................................................................................................... 40 Imbalance of power in relationships .......................................................................................................................... 41 Takeaways .................................................................................................................................................................. 44 4. Policy initiatives ................................................................................................................................ 45 Background .................................................................................................................................................... 45 Preventive measures ..................................................................................................................................... 46 European Construction Sector Observatory 3 Late payment in the construction sector Analytical Report Hard regulations ......................................................................................................................................................... 46 Soft regulations .......................................................................................................................................................... 53 Takeaways .................................................................................................................................................................. 56 Corrective measures ...................................................................................................................................... 57 Hard regulations ......................................................................................................................................................... 57 Soft regulations .......................................................................................................................................................... 59 Takeaways .................................................................................................................................................................. 60 5. Lessons learnt .................................................................................................................................... 61 Observations .............................................................................................................................................................. 61 Policy insights ............................................................................................................................................................. 62 European Construction Sector Observatory 4 Late payment in the construction sector Analytical Report Table of Figures Table of Tables Table of Boxes European Construction Sector Observatory 5 Late payment in the construction sector Analytical Report Executive Summary This Analytical Report is part of the European Construction Sector Observatory (ECSO) project run on behalf of the European Commission. This Analytical Report aims to better understand, through national case studies, some of the main causes of late payment, and how policies and instruments are tackling this issue. The report also provides a set of lessons learnt for policy-makers on how to address the problem across European Union Member States (MS). While unfair long payment terms and late
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