Is it fair for the government to criticise tier 1s on poor payment practices when as a client it is guilty of the same?
Main contractors are the villains, suppliers the victims. That’s been the view on late payments to the construction industry’s supply chain for years.
Back in April a crackdown caught everyone’s attention: the likes of Balfour Beatty, Laing O’Rourke and Interserve were suspended from the Prompt Payment Code (PPC), a code of practice set up by the government in 2008.
Is it fair for public sector clients to bash tier 1s over the head for poor payment practices when they are guilty of much the same thing?
Central government also appeared to get heavy in April, with Cabinet Office minister Oliver Dowden weighing in on the issue. He wrote to main contractors telling them to pay 95% of invoices on private sector jobs within 60 days or face being banned from future public sector contracts.
The government later got real and dropped that threshold to 75% of invoices, but contractors still face a dilemma: to win public sector work they have to pay suppliers faster but as debt financing has been squeezed, the pressure is on to hold on to cash for as long as possible.
It’s a difficult balancing act but some progress has been made. Eleven suspended PPC signatories have now been reinstated and Laing O’Rourke – one of the slowest payers – says it now pays 79% of invoices within 60 days, a big jump from just 57% in the previous six months.
Now Laing O’Rourke has thrown the problem back on to clients – specifically public sector clients – suggesting they should take some of the blame for the late payment culture and do their bit to change it.
Laing O’Rourke – like many other contractors – has had its fair share of challenges in a difficult economic climate, with its biggest division Laing O’Rourke plc posting a loss over the last four years. It may now have turned a corner: its latest accounts show it is back in the black, moving from a £25.2m loss to a pre-tax profit of £32.7m.
It is undoubtedly a positive story, but when you look closer at the report filed alongside the accounts, you see there is also a tale about what clients have been up to – and this bit is not so favourable.
The country’s biggest private contractor takes up a page of its report to elaborate on the difficulties all firms have faced in accessing funding from banks since the last recession, before laying into public sector clients for their continued “traditional approach to payments to tier 1 contractors”.
The major beef is the time clients take to agree and settle variations, as well as the length of time they hold on to cash retentions and their reluctance to pay for “the offsite manufacture of components”.
It has got a point. Is it fair for the government to bash tier 1s over the head for poor payment practices when as a client it is guilty of much the same thing? Perhaps it is time the public sector led by example and paid main contractors on time. Then contractors might stand a better chance of doing the same.
Chloë McCulloch, editor, Building