While subcontractors have been treated badly and payment terms need to be improved, the public humiliation of contractors is a step too far, says Tom Broughton
Last week, we reported on Cabinet Office proposals to ban companies with poor payment practices from major government projects. They are part of a concerted push by the government to introduce measures to level the playing field for smaller businesses bidding to win government contracts and to bring in fairer payment practices. Other new rules, the consequences of which are only emerging now, are forcing firms with a turnover of more than £36m to report their payment term performance.
Let’s be clear: late payment is the bane of our industry and it needs to be stamped out. Carillion, a signatory to the Prompt Payment Code, was widely known for poor payment practices, with the company’s former finance director Emma Mercer conceding 5% of suppliers were paid after 120 days when she faced MPs running an inquiry into the company’s collapse.
Still, there is the unignorable feeling that the government is playing to the gallery, responding to the public mood as jobs are lost and firms go under in the wake of Carillion’s collapse. Contractors, it seems, are fair game.
It’s becoming near on impossible for contractors to satisfy the demands of insurers and the sharp pen of the bondsman
Everyone knew that paying the supply chain after 120 days and charging them for the privilege of being paid earlier was a racket. Folk took their chances, right, because they needed the work? Including the government, which, as a client, let them get away with it. Well, until January, that is, when suddenly it couldn’t. You can’t help but think the government thought up its plans to close the stable door when it finally realised that the horse had bolted.
If you look at the payments terms of some key contractors on pages 20-22 you’re left wondering what best practice looks like. But there is a danger that in the frenzy to bash contractors, we go too far the other way and compliance becomes a monumental pain in the backside.
For sure, subbies everywhere, and those campaigning on their behalf, see Carillion’s collapse and the fevered government mood as an open door for reforms to progress their interests. They claim these reforms are overdue and a prelude to the compulsory introduction of project bank accounts and the eventual banning of cash retentions. After all, they argue, that’s what everyone wants, right? Well, no, actually.
Major contractors will pay lip service to government initiatives as they want to win work and not have a regulator breathing down their necks. So the duty to report is fine by them, an easy win for the government and a neat public relations trick for all. But when faced with the day-to-day poor performance from suppliers on projects, contractors’ commercial thinking kicks in – and that’s when holding on to a retention may be necessary.
Another plan the government has is to allow subcontractors to have greater access to buying authorities to report poor payment performance. The fear is that reasonable decisions to withhold money taken every week by contractors on sites across the land will be lost in translation when documented in a “grass your mates up” report for the government. Or when simple cash flow management goes awry – as it sometimes does – that folk will be publicly hung out to dry by a group of self-appointed, establishment-backed, industry referees. It just doesn’t feel right. Of course, subbies have been feeling pain. But the key point is that not everyone has behaved as poorly as Carillion. And it’s a pressured environment for those at the top, too. It’s becoming near on impossible for contractors to satisfy the demands of insurers and the sharp pen of the bondsman. And with the huge increases in professional indemnity insurance premiums, contracting is going to cost more. Contractors will pass this cost on, but not before they’ve suffered a whole load of hassle and pain to do it.
How much more are contractors expected to take? Remember, they are already really exposed. They’re facing the fallout from Carillion and radical scrutiny of their work. Post Grenfell, clients are looking at all their projects and potentially could go back 10 years or more looking for the chance of a commercial claim they can put in the name of safety, technical or specification concerns. So where does it end? After all, dare any QS to open up an historic project and they will be sure to ratchet up some kind of underlying fault.
While subcontractors have been treated badly and payment terms need to be improved, the public humiliation of contractors is a step too far. And to do it neglects the commercial and operational realities of the game everyone is in. After all, subbies need their main contractors to be strong by hook or by crook or else nobody will get paid.
Welcome to a slimline CITB
We knew the CITB would be slimming down, but this week’s publication of its business plan reveals by how much: it’s losing 60% of its staff over three years. The idea is that most of the 800-plus jobs are transferred to other employers, but redundancies haven’t been ruled out. The cost-cutting exercise, which also entails flogging off its Bircham Newton HQ, is long overdue for construction’s weary levy payers. Less popular perhaps is the decision to appoint a Whitehall mandarin to replace James Wates as chair. Peter Lauener will be in the role one day a week while still running the Student Loans Company until the autumn. No doubt he can juggle both, but the real question is does he have the passion, charisma and industry knowledge to sell the new-look CITB to a sceptical audience?
Chloë McCulloch, deputy editor
Tom Broughton, editor-in-chief, Building