It will probably surprise few to read in news this month that construction suffers more from the bugbear of late payments than any other industry; and smaller firms in the industry suffer worst of all. Waiting 80 days has not been unusual for many years, and the latest survey suggests delays of up to 107 days.
There has been a far more widespread recognition about the problems created for supply chains by late payments in recent years and there seems to be a rising tide of legislation and other measures moving against it. Supplier payment clauses have been introduced to some contracts, with the public sector taking the lead role, to try and speed the payment process up. Despite some dire warnings about how this would impact on main contractors, there doesn’t seem to have been much shortage of bidders for major public sector contracts in recent times.
Government has now promised to legislate against late payments in an Enterprise Bill that was mentioned in the post general election Queen’s Speech. This could give trade associations power to intervene in disputes over late payment and other unfair payment terms or practices. It will be interesting to see how this pans out, if it in fact comes to anything. Many trade associations already give members advice about signing potentially onerous contract terms, but commercial reality being what it is many of them feel obliged to agree to them anyway and hope for the best.
A major reason for late payments is that some firms simply do not have the cash flow that would enable them to pay suppliers on time. Project Bank Accounts are reportedly having great success in ensuring that money is available when needed to be passed along the supply chain, but not every project will be suitable.
The Construction Industry Council, a joint governmentindustry body, has set a target of 30 day payments by 2018, with 45 days to be the norm by July this year. The Public Contracts Regulations 2015 came into effect this year with the aim of ensuring that all public sector contracts have a provision to ensure payment within 30 days of validation of an invoice. There is no specified time within which the validation must be made, but it is supposed to be promptly.
By the end of this year we should have a clear picture of how this voluntary agreement reinforced by the Public Contracts Regulations works with public sector clients; if successful it could help shape legislation that would apply across the public and private sectors.
The Small Business, Enterprise and Employment Act was also enacted this year, under which larger enterprises will have to publish their payment practices record every six months. Naming and shaming can be a powerful strategy in some contexts and the prospect of the worst late paying offenders being regularly exposed in a ‘Roll of Shame’ might change some attitudes.
What would help is a strengthening of attitudes, along the supply chain, against tolerating late payment and other unfair payment practices, which is already anecdotally happening as market growth means firms can be choosier about who they work for and what terms they will put up with. It would be hard to legislate for this; a large part of the solution to the late payments problem might prove to be in the hands of suppliers themselves.
Nick Barrett
Editor