Pressure is mounting on the construction industry’s late payers to get their houses in order and find ways to stop log jamming the industry’s cash flow. A new ‘prompt payment charter’ is to be released imminently (see news) by the Construction Leadership Council (CLC) that will pledge to have 30 day payment the norm by 2018.
This latest attempt to get industry agreement on ending late payment will produce a voluntary charter, with signatories promising not to withhold payments and to make all payments electronically. The group is composed of industry and government representatives – chaired by Business Secretary Vince Cable and HS2 Chairman Sir David Higgins – and has a broader brief than late payment reform, being tasked with implementing the government’s ten point plan contained in Construction 2025.
Cynics will point out that there is already no shortage of voluntary measures to end late payment, none of which are having enough impact. They might also ask why wait until 2018, why don’t the late payers introduce prompt payment right now if they are serious about it at all?
That’s a fair question. The details of the CLC scheme were to be finalised as CL went to press but they have been extensively leaked. It appears that signatories will agree to immediately make all payments within 60 days, within 45 days by June 2015 and 30 days by January 2018. A move to abolish retentions by 2025 at the latest was also expected – and again the question arises why this unjustifiable practice should continue, for perhaps another ten years.
These delays suggest how difficult it is going to be for main contractors to operate without this traditional source of working capital. For many years they have used their suppliers’ credit lines to fund their operations; those days are surely drawing to a close and this latest attempt to end late payment might prove to be their last chance to reform before mandatory prompt payment is introduced.
A clear warning that patience of smaller firms has been taxed far enough by late payment and other practices that they regard as unfair can be seen in a report from the Forum of Private Business in April which finds that 36 per cent of members wanted to see persistent late payers banned from government contracts.
That is a high proportion in favour of what would be a fairly draconian measure. Considering that some £30,000 million is estimated to be tied up by late payment it is no surprise that smaller firms are incensed by the problem.
Raising the working capital needed to end the need for late payments will provide a major challenge to many cash strapped main contractors in construction, but that is another issue. Maybe public sector clients can help lubricate the process by making at least some payments ahead of current contractual requirements.
The CLC’s prompt payment charter looks like it could be the last chance for voluntary reform before the pressure for mandatory payment compliance or even bans from public sector clients becomes irresistible.
Nick Barrett
Editor