Construction: Calls to Action on Poor Payment
In the wake of Carillion’s collapse, construction industry chiefs have called for action to tackle bad payment practices.
Mark Castle, chairman of Build UK, spoke to Construction News about the need for “consequences” for bad payers, calling for more transparency to expose the industry’s worst offenders.
“When you have companies that have poor payment practices there has to be consequences for those companies, particularly when it comes to winning work,” he said.
He continued: “We are all working in a competitive environment bidding against our peers to try to win work.
“But if there are four companies bidding for work that all have good payment practices and there’s one that doesn’t, you have to ask: why has that client included that company on to that bid list? Why is that company allowed to continue in the market and win work?”
In a news release titled ‘Catalyst for Change’, Build UK laid out three outcomes it would be pursuing this year.
- Identifying and challenging the bespoke contractual clauses introduced to contracts that demand inequitable transfer of risk.
- Publicly benchmarking members on payment performance to help clients, contractors and suppliers make informed decisions about who they work with.
- Implement a roadmap to zero retentions, addressing the practice and its underlying drivers to change payment practices forever.
When Carillion, the UK’s second largest construction company, went into liquidation it had a £900m debt pile and owed an average of £141,000 to small building, engineering and electrical firms.
The collapse sent shockwaves down the supply chain and was exacerbated by the fact that Carillion had among the worse payment practices – paying sub-contractors after a 120 day delay.
It was argued that this represented and inequitable transfer of risk from Carillion to its sub-contractors.
Speaking to the Financial Times, small business commissioner and former MP Paul Uppal said that he wanted to see a “cultural change” in the industry.
But he warned: “Ultimately if I don’t achieve this you are probably going to see legislation. There is a cross-party consensus on this. There is a political will for this to happen.”
Miles Grady, director of Umbrella.co.uk said: “Extremely long payment terms are clearly not good for contractors, opening them up to take serious risks.
“It is encouraging that Build UK is taking collaborative action to tackle payment terms – particularly on transparency, more of which is needed in the construction sector.”