Organisations representing 24,000 specialists have written to the Government demanding improvements in payment practices
An open letter to Whitehall states: “The widespread, long-standing, culture to pay small suppliers late – or even not at all – results in hundreds of firms going under every month.
“This is now compounded by the collapse of some major firms, leaving vast amounts of monies owing to their supply chains. Every day, at least ten construction firms are going insolvent.
“Construction firms experience industry-specific issues that hamper their ability to manage risks associated with insolvency including:
Whilst government commits to pay its Tier 1 suppliers promptly – often within 10 days – barely 5% of firms in the supply chain report that they are paid within 30 days
Prompt payment policies are unaudited by clients and the supply chain cannot enforce them due to the real danger of commercial reprisals that would further damage trading
- loss of title to goods and materials that are incorporated into buildings and structures, but not paid for
- most firms – being small – cannot insist on types of protection, such as advance payments and payment bonds, that are available to others
- retentions held for long periods, (monies held back on account of possible defects) means that these are always lost in the event of insolvency further up the chain
- the largest firms are poorly capitalised, so they cannot pay their supply chains without being paid themselves and impose even longer payment periods on small firms
- the industry is bottom-up funded but suppliers cannot continue to do this since bank lending has run dry.
“Any attempt to promote growth by investing in construction activity will not succeed unless the money flows quickly through to the people on the ground.
“We call on the Government and all public sector procurement bodies to listen to the voice of small businesses in the construction industry. Our six point action plan is:
- Exclude from public sector works any firm which has a history of poor payment performance
- Legislate to require that all retention monies are put in trust
- Abolish pay when paid clauses that result in non-payment to the supply chain when the client goes insolvent
- Only appoint firms as lead contractors which are sufficiently capitalised to resource the project
- Ensure advance payments are made so that cash flow is available for firms which have to fabricate or assemble their product prior to delivery on site
- Increase the use of project bank accounts that secures the supply chain’s cash in a ring-fenced account.
The letter has been signed by:
Professor Rudi Klein
Specialist Engineering Contractors’ Group
Building and Engineering Services Association
Director General Designate
British Constructional Steelwork Association
Electrical Contractors’ Association
Lift and Escalator Industry Association
Scottish & Northern Ireland Plumbing
Association of Plumbing & Heating Contractors
Federation of Master Builders
Stone Federation Great Britain
Association of Interior Specialists
Barry J Ashmore