Late-paying firms could be banned from winning public work according to new rules outlined by the government.
New rules are set to be introduced by autumn 2019 to ensure the government “only does business with companies who pay their suppliers on time”.
Cabinet Office minister Oliver Dowden said: “From next year, if government contractors are late with supplier payments, they could stop winning public contracts altogether – until they clean up their act.”
As part of the new measures, the government will overhaul its complaints service to help suppliers of all sizes raise complaints and concerns over procurements they are involved in, or about the conduct of contracting authorities.
The new rules follow the collapse of Carillion, which owed £2bn to its own suppliers when it went into administration.
The Carillion failure, along with other notable administrations over the past 12 months, has put the spotlight on how public sector clients approach paying their supply chain, particularly SMEs.
New data released by Build UK earlier this month suggested several major specialist contractors were taking more than 50 days to pay their suppliers, with one demolition firm averaging over 100 days.
In July, figures for 19 of the top 20 contractors in the UK found that they took an average of 47 days to pay invoices.
In the same month, Mace chief executive Mark Reynolds called for late-paying clients to be named and shamed.
Mr Reynolds told Construction News accusations of poor payment had focused heavily on main contractors and their supply chains while ignoring how promptly clients pay contractors.