When will the government clamp down on late payments in the construction industry?
This time last year the government said they would ban slow payers from public sector construction projects. The plan was that main contractors who weren’t paying their suppliers on time would no longer be awarded public projects.
There was no timetable given for this to happen, and a year later it appears that nothing has changed.
Two bills have been introduced, but it looks like both have had their second reading in the House of Commons postponed.
Conservative MP Peter Aldous told the New Civil Engineer that his bill to reform retention payment practices in the construction industry is unlikely to succeed. It was due for a second reading in March, but there had been no mention of it in media coverage when I checked.
Late payments campaigner and Labour MP Debbie Abrahams has put forward a bill calling for payments on government and public authority contracts to be made through a project bank account. This bill was also due to get its second reading in March, but has not been mentioned in the press so it looks like this second reading didn’t happen.
Presumably other matters have taken priority.
This is a real shame for the industry, which has a bad reputation when it comes to paying. I think we are probably all aware of companies who have gone under after being on the receiving end of slow payments or unreasonable retentions from a tier one firm.
And, of course, we know that many of Carillion’s suppliers went out of business after the construction giant collapsed at the start of 2018. It was their liquidation that triggered the government’s suggested reforms.
Speaking to The Construction Index, the MD of a Carillion supplier said: “We came as close to going out of business as you possibly can. It wasn’t just the money they owed us, it was the detrimental effect it had on our order book, and letting people go. When Carillion went under, other companies started to hold onto cash longer.”
The underlying issues that caused the Carillion collapse haven’t been addressed. And suppliers and sub-contractors can often wait 45, 60 and even 90 days or more for payment.
It is difficult for suppliers to “bite the hand that feeds them” and demand to be treated better, when this behaviour is happening throughout the industry.
They can choose not to work with the worst offenders, but this won’t impact on behaviour unless all suppliers and sub-contractors refuse to work with these companies.
So what is the answer? Hopefully the government will eventually act on the recommendations they made after Carillion collapsed. But how can you protect your business when there is no legislation in place?
It’s not completely fool proof, but you can do your own checks on a company before you start working with them. Many companies will have been on long-term contracts with Carillion, so undertaking due diligence at the start may not have protected them. But more recent sub-contractors had a chance to anticipate the issues to some extent.
Investors had picked up on problems with Carillion long before they went under, owing £7 billion in total, including £2 billion to subcontractors and suppliers.
And while many small businesses were caught out, there will have been some who got wind of what was going on at Carillion and decided to focus on bidding for other contracts.
Those who were caught out and survived, will no doubt be much more cautious in the future.
To read more about doing due diligence on the companies you work with, you can read my previous article here.
And if you need a structural engineer on an upcoming or existing project, please get in touch.