Government under pressure to tackle late payments

The government is facing industry calls to take urgent action on the late payment culture that pervades construction supply chains after years of consultation and voluntary measures that have had little impact.

The Building Engineering Services Association (BESA) is the latest industry body to call for change, following the insolvency of 50-year-old, family-owned Vaughan Engineering as a direct result of the collapse of Carillion in January.

BESA chief executive David Frise said late payment legislation backed by tough enforcement measures was needed now to prevent more company failures:

‘We have had multiple voluntary late payment initiatives over the last two decades, none of which proved to be of any use whatsoever in the face of notorious late payers like Carillion.’

The Carillion head offices in Wolverhampton. Photo @ Roger Kidd

The government introduced a Prompt Payment Code ten years ago that set out good practice in public procurement, including the payment of suppliers within 30 days.

Despite the code still being administered by the Department for Business, Energy and Industrial Strategy, Carillion famously went public five years ago with its own requirement for suppliers to accept 120-day payment terms. Carillion continued to win government contracts without censure and remained a signatory to the code.

Business Secretary Greg Clark and Chancellor Philip Hammond have both pledged to make urgent changes to public procurement policies in recent weeks, but without giving any details or timetable.

The government’s two most recent late payment initiatives are still in the early stages of establishing themselves.

Launched exactly one year ago, the Payment Practices and Performance Reporting regulations call on large companies to publish twice-yearly the average time they take to pay invoices and the percentage that are not paid within agreed terms.

The first round of reports was due in December 2017, but the initial response rate has been low, partly as a result of companies preparing accounts at different times of the financial year.

The government’s analysis of the 307 businesses that supplied data for the first half-year period found that only 29% had settled their accounts within 30 days. The purpose of this public record is ‘naming and shaming’, so there is no requirement for any of the reporting companies to improve their performance.

The second initiative is the complaints handling service set up by the government’s newly-appointed Small Business Commissioner.

The service not only offers advice to small business trying to resolve late payment disputes with larger organisations, but can assign a case officer to examine evidence from both sides and decide on a fair outcome. Case officer recommendations are not legally binding, however, so the jury is still out on how effective the service might be.

The Small Business Commissioner’s remit only extends to the private sector. Architects and other suppliers in England unhappy with any unreasonable public sector procurement practices are encouraged to raise their concerns anonymously with the government’s Mystery Shopper scheme.

One area where the industry hopes to see an important step taken towards improved cash flow for suppliers, including design professionals, is the Aldous Bill, which is seeking to introduce a retentions deposit scheme through an amendment to the Construction Act.

Conservative MP Peter Aldous won unanimous support for his private member’s bill at its first reading, and it returns to Parliament for a second reading on 27 April. With widespread support among construction organisations, the bill would end the practice of payments being withheld for an unreasonable length of time and eliminate the risk of retentions being lost through contractor insolvency.

Requiring project bank accounts across the public sector, rather than just advocating them as the government does currently, is another step that ministers could easily take to improve payment practices.

Given the thousands of construction jobs that are understood to remain in a perilous position due to the Carillion collapse, BESA’s Frise says he cannot see why such measures need further discussion.

Text by Neal Morris. This is a Professional Feature edited by the RIBA Practice team. Send us your feedback and ideas.

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Posted on 5 April 2018.

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