3 minute read
Legal & Business
PROMPT PAYMENT IMPROVEMENTS ENCOURAGING BUT NOT ENOUGH
Neil Sherreard, Deputy Chairman of Beard Construction, is a Fellow of the Chartered Institute of Building and a Chartered Environmentalist
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It should be incumbent on all stakeholders to a building project to ensure the fair treatment of the supply chain. However, there are still stories of unscrupulous tactics by some contractors withholding or delaying payments to their supply chain, yet many clients are not asking for evidence of payment practices when awarding work. Neil Sherreard, Deputy Chairman of Beard Construction, explains more.
From the contractor’s perspective, withholding or delaying payments is not only morally questionable, but also doesn’t make business sense. After all, we are all striving to achieve the same outcome – to be treated fairly, produce beautiful spaces together and be rewarded for our efforts at the right time.
Poor payment practices can only serve to frustrate this. Therefore, ensuring companies look after the people helping them to deliver for their customers must surely be a prerequisite for awarding contracts.
Sadly, this is not a new debate. Prompt payment and the fair treatment of suppliers has been a topic of discussion in the construction industry for decades. However, the pandemic has intensified the debate around the issue, with smaller supply chain companies able to inject much-needed capital into the economy.
Small businesses are a growth engine for the UK economy, employing 61% of the private sector workforce (16.8 million) and generating 52% of turnover. Yet almost 50,000 go out of business each year due to cashflow problems.
A significant number of these businesses will operate in the construction sector, as construction sites generate a significant amount of work for smaller suppliers and sub-contractors.
That’s why it has never been more important to ensure fair treatment of suppliers and sub-contractors including prompt payment of invoices.
Earlier this year, the Government announced changes to the Prompt Payment Code (PPC) which came into force from 1st July 2021. The new rules state that suppliers that have signed up to the PPC have to pay suppliers with fewer than 50 employees in 30 days.
Despite this positive step, according to the small business commissioner, who oversees the PPC, £23.4bn worth of late invoices are currently owed to firms across Britain.
Recent research from Build UK suggests that things are moving in the right direction at least. Its latest survey found that average payment times have improved over the last six months. The figures show that, on average, contractors paid sub-contractors within 34 days, which is 11 days quicker than in July 2018 when they first started collecting data.
However, these improvements are set against the backdrop of worker and material shortages. It seems clear that one of the ways to mitigate the risk of projects running late due to supply chain issues is to ensure prompt payment, as that will inevitably mean better working relationships with those suppliers and sub-contractors.
The multi-faceted nature of the construction industry means that, as a contractor, you have to recognise your position sitting near the top of the supply chain, and that prompt payments assist many other suppliers in managing their businesses successfully. We cannot operate in isolation without consequences for the rest of the industry, upon which we all rely.
At Beard, it’s long been part of the business’ ethos to commit to a maximum of 30day payments, while striving for shorter times, because it is the right thing to do. With the general shortage of people currently, certainty of payment should help to attract more people into the construction industry and help alleviate some of the current issues.
It’s better for the long-term pipeline of opportunities as well, if you’re able to deliver your projects in harmony with a committed and loyal supply chain. Some customers are increasingly asking their contractors for evidence that they are paying their supply chain promptly, but not all. Customer interrogation of fair treatment of the contractor’s supply chain may, in the long run, be the greatest driver of prompt payment for all and subsequent long-term health of our industry.
