The PMcM warns MEPs about the setback and dramatic consequences of approving “freedom of contract in the Late Payments Regulation.

IMCO COMMITTEE WILL VOTE ON THE AMENDMENTS NEXT THURSDAY, 22^ND.

• Freedom of contract, “while legitimate, will not achieve the neutrality it seeks; moreover, it opens the door to legally extending deadlines beyond those provided for in the regulation. When the economically weaker party must finance the stronger one, there is no fairness; freedom of contract must be equitable, so the law must take into account the differences between the parties to ensure that the outcome is neutral.”

• If freedom of contract were established, payment terms will undoubtedly increase, as there are many interested parties in paying late, which can provide them significant financial benefits, especially in inflationary periods and high interest rates.

• The PMcM calls on all European parliamentary groups to act responsibly and support on the 22^nd, the compromise amendments previously agreed upon thanks to the efforts of the rapporteur, MEP Röza Thund.

Madrid, February 19^th, 2024.- The conservative parliamentary groups, the European People’s Party (EPP) and the European Conservatives and Reformists (ECR), have presented a series of amendments to the European Commission’s proposal for a Regulation on combating Late Payments, which, according to the Multisectoral Platform against Late Payments (PMcM), “represents a step back in the fight to reduce payment terms”. These amendments are based on the argument of “freedom of contract” between the parties, which according to PMcM President Antoni Cañete, “while legitimate, it will not achieve the neutrality it seeks; moreover, it opens the door to legally extending deadlines beyond those provided for in the regulation”.

When the economically weaker party must finance the stronger one, there is no fairness; freedom of contract must be equitable, so the law must take into account the differences between the parties to ensure that the outcome is neutral,” warns the PMcM. If freedom of contract were established, payment terms will undoubtedly increase, as there are many interested parties in paying late, which can provide them significant financial benefits, especially in inflationary periods and high-interest-rates.

Prior to the presentation of these «unfortunate» amendments by the European conservative groups, it is important to note that during various working meetings in the Internal Market and Consumer Protection Committee (IMCO) of the European Parliament, the other parliamentary groups had already reached an agreement on nine compromise amendments. These amendments, for the most part, maintained coherence with the European Commission’s initial proposal and incorporated proposals put forward by the PMcM.

For Cañete, it is «crucial to understand that implementing freedom of agreement between parties would represent a regression to the situation prior to the 2010 Law, with the consequent risk of perpetuating abuses of dominant positions by large companies.»

The PMcM calls on all European parliamentary groups to act responsibly and support on the 22nd, the compromise amendments previously agreed upon thanks to the efforts of the rapporteur, MEP Röza Thund.

Contradiction, impossible control, and frauds

The amendments allow the possibility of extending payment terms to more than 30 days, provided it is specified in the contract and the extension is not “grossly unfair” to the creditor. For Cañete, “this represents a contradiction in itself as no one will specify in a contract something that it grossly unfair.” It is worth noting that worst-paying companies are usually the largest ones, which generally have Corporate Social Responsability codes. Therefore, the “additional condition of notifying such an exemption to the enforcement authority implies an additional administrative burden for companies, more bureaucracy for the authorities, increased costs, and impossible control by the authority”.

Although this modification would exclude the possibility of application between SMEs and large companies or the administration, Cañete denounces that «experience shows us that the largest companies have the means to bypass it, for example, by signing their contracts through intermediary companies of smaller size, joint ventures…» Demonstrating this fraud «would require actions by the harmed parties, which in most cases cannot afford.»

Additionally, the proposal includes the removal of payment controls to subcontractors in public procurement. This «will harm subcontractors who will receive their invoices at longer terms without any control or responsibility on the part of Public Administrations,» says Cañete. In fact, at least Spanish Public Administrations «have never been too interested in applying the rule that obliges them to do so in certain contracts, as demonstrated by the reports on the matter presented by OIRESCON,» he concludes.