Our supply chain is our lifeblood

We all know that the construction industry has fallen short at times when it comes to paying its bills, especially when it comes to smaller supply chain partners.

Since 2008, thousands of construction supply chain partners have been hit by a perfect storm of falling workloads and tighter bank lending, culminating in a terrible figure last year for our industry which saw the number of construction industry bankruptcies at 2743 , a rise of four hundred on the previous year, (a higher level than even the hard-hit retail industry).

Worryingly, figures are expected to be worse this year. This cannot be allowed to happen. Our supply chain is our lifeblood as much as our own people. At Balfour Beatty, two thirds of our UK construction business revenue is spent with 15,000 supply chain partners, 8,000 of who are SMEs. They are vital to everything we do.  We expect a lot from them, and in turn they are right to expect a lot from us. Bankruptcies damage people’s lives and livelihoods. No responsible company can stand by and let bankruptcies happen if we can help prevent them.

No responsible company can stand by and let bankruptcies happen if we can help prevent them

We have been trying to find the solutions to this precarious state of affairs. We started by pulling together as an industry, with few exceptions, by signing up to the industry and Government Prompt Payment Code, which signals a firm commitment to paying our supply chain within clearly defined terms. 

There have been critics of the code but evidence from the Institute of Credit Management shows the Code has improved payment times for the supply chain.

Some contractors have gone further than the Code requires and introduced supply chain finance schemes. These give the supply chain faster access to the money than their agreed payment terms for work they’ve carried out, enabling the supply chain to keep their cash flows operating at a maximum.

The recession has also meant that many large companies have taken a look at their own overall efficiency. Many have standardised and simplified their back offices meaning they are able to pay the thousands of invoices they receive every day more quickly. We need to keep working hard to get better.

Payment cards have also become a widely used way to help the supply chain receive payment more quickly. These are essentially project credit cards which enable large contractors to be more nimble and responsive to supply chain needs, allowing them to be paid within a couple of days for selected and good works.

We also want to bring our supply chain with us on the sustainability journey so that they are more resilient in the future, particularly when many of our customers are telling us they will only award contracts to those businesses which they think are truly sustainable in terms of greenhouse gas emissions and so on. Several main contractors formed the Supply Chain Sustainability School.

This helps the supply chain to understand and develop to ensure they can meet new sustainability targets. So far this scheme has helped over four hundred medium and small sized supply chain partners to develop the long term skills they need to bid for jobs successfully.

So, more than some might think, as an industry we are working very hard to find increasingly innovative ways to support those who work for and with us.

We must continue that momentum and make sure that we look after each other – even when our industry is sailing in calmer waters in the years ahead.

Nick Pollard is chief executive of Balfour Beatty Construction Services UK