The upturn in the construction industry should redress the power imbalance in the supply chain

Sarah Richardson

With every week that passes, it’s becoming more and more apparent that life for contractors is, finally, starting to feel more than a little better than being rammed onto a London bus mid tube strike.

And now, the statistical signposts - output figures showing a 4.5% jump on a year ago, and predictions of tender price rises of up to 5% this year - are also being felt in an actual shift in contractors’ power in the market.

As we report this week, there has been a fundamental shift away from the single stage design and build tendering so loathed by contractors, who are left bearing the risk on a project by being held to a price agreed upfront. Instead, clients are increasingly reverting to two stage procurement, putting contractors firmly back in the driving seat when it comes to negotiating costs.   

This is, of course, a hugely welcome step for the contracting sector - and also one which, in a market where prices are steadily rising, will reward those forward thinking clients that did not opt for the single stage guillotine approach in the first place.

But for the industry and ultimately its clients to benefit from this shift in terms of more reliable and realistic project costs and programmes, the balance of power also needs to be redressed further down the supply chain. And there are already worrying signals that this is not happening.

In a survey by the National Specialists Contractors Council (NSCC), published this week, three quarters of specialists reported current payment periods of between 30 and 60 days for work done - so up to double the length of time the government regards as “fair.”

This was despite them also experiencing an uplift in market conditions, with 60% anticipating increasing workloads in the coming year.

This has understandably fuelled concern among specialists who, in common with the rest of the industry, are still a long way off recovering from the deep financial wounds of recession.

Industry responses from specialists’ bodies to a government consultation on reducing late payment across all sectors of the economy, which closed last Friday, included calls for 30 days to become a legal maximum payment term. The NSCC also said that the government should “name and shame” firms that fail to adhere to the measure, with those who do not being barred from public sector work.

The balance of power also needs to be redressed down the supply chain. And there are worrying signals that this is not happening

Unsurprisingly, many larger companies are resistant to such a drastic move, with the CBI calling instead for greater transparency of payment terms between businesses. But if main contractors do not want the burden of additional legislation, or the threat of removal from public sector tender lists, the clearest argument against it would be to ensure the cash they are starting to earn again from clients is passed down fairly - in other words, on time - through the supply chain.

Otherwise, late payment will continue to be a bar on the industry’s ability to deliver as effectively as it could - and that, more than any moral argument, could well force ministers’ hands.
Sarah Richardson, edito