Government urged to act on Carillion 120 day payment

Aaron Morby 11 years ago

The National Specialist Contractors Council has called on Government to stop awarding Carillion contracts after it imposed payment terms extending to 120 days.

The specialist trade body’s chief executive Suzannah Nichol has written to business minister Michael Fallon describing the new payment terms as grossly unfair.

The letter calls on Government to put teeth into its own prompt payment policy and only award contracts to firms that pay within 30 days on public contracts and 60 days on other projects in the business.

She writes: “It is disingenuous that companies such as Carillion that implement 120-day payment terms are able to sign up to the current Prompt Payment Code and claim Government support for their payment practices.

“We believe 120 days is ‘grossly unfair’ and, if the Government is truly committed to good business practices including fair payment, then it must surely act now.”

In supporting documents sent to the minister, the NSCC says: “It is highly unlikely that tier one contractors would agree such long payment terms with their clients.

“Any decision to impose them on their supply chains suggests that they are seeking to hold onto payments received from their clients for a considerable period of time before making payment to their supply chains.

Nichol has called for a meeting with the business minister to discuss the issue as a matter of urgency. Similar letters are being sent to Chancellor George Osborne and Business Secretary Vince Cable.

She told the Enquirer: “As things stand the Government Prompt Payment Code seems to be allowing contractors to pay within contract terms.

“It needs a back stop that spells out what prompt payment is, 120 days in anyones eyes is not fair payment.”

As well as tightening up the Government’s voluntary Prompt Payment Code, the NSCC wants to see the use of Project Bank Accounts extended.

Under Carillion’s new Early Payment Facility, payment terms have risen from a maximum of 65 days to 120 days with specialist contractors paid directly by a bank instead of Carillion through reverse factoring.

If specialist contractors want to be paid earlier, they will have to pay a charge to the bank which is set out on a sliding scale depending on how early they wish to be paid.

Carillion defended its move claiming it offered a very wide range of payment terms which were negotiated with all of its suppliers on an individual basis.

“These range from our standard terms, which we extended last year to 120 days, to payments in advance for some of our smaller suppliers,” said the contractor.

Carillion claimed a large number of key suppliers had already signed up to the Early Payment Facility scheme and the feedback had been very positive.

But the new payment terms have also caused outrage among specialist contractors, who warn that Carillion is facing a cash squeeze after net borrowing at the group rose from £50m in 2011 to £158m, according to its last set of results.

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