Are late payment practices in construction too much for suppliers to bear?
Carillion’s collapse has exposed the harsh realities of construction’s late payment practices for suppliers. But now at last there are signs that the government and industry bodies are determined to crack down – the only question is: how far will they go?
Debt collection agencies are usually associated with the murkier side of the economy. It’s not the kind of recourse one would expect subcontractors to resort to when dealing with stock market quoted companies. But Kevin McLoughlin, founder of painting and decorating supplier K&M McLoughlin, says it has become standard practice at his firm to use debt collection agencies to deal with late and retained payments by the tier one contractors that he deals with.
Although his company has a member of staff dedicated to chasing late payments – a luxury he points out that many of his peers in the supply chain cannot afford – he says the problem has become so big that he has brought in the debt collectors. The agencies’ 10% commission is usually covered by the interest on repaid debts, he says. “It’s better to hand it over to a company so we can concentrate on positive things.”
Construction’s late payment dirty secret has had a thorough airing over recent weeks amid the fallout from the collapse of Carillion, which went bust owing huge sums to its myriad suppliers. Their ranks include McLoughlin, although he is in a much better situation than Vaughan Engineering, which went bust itself last month, blaming the £650,000 it was owed by Carillion.
Carillion may have earned a reputation as the industry’s most notorious poor payer, stretching its payment contract terms to 120 days in the year before its collapse, but there is little doubt that what was until recently the UK’s second biggest contractor was far from alone in its laggardly payment practices.
Last week the Cabinet Office announced plans to ban companies with poor payment practices from major government projects, in what has been interpreted by trade bodies as a welcome response to the financial pain being felt by Carillion’s suppliers and others. While we are learning more this year about main contractor average payment times thanks to new payment data being established, pressure is also mounting in parliament to protect retention payments and elsewhere there are calls for the complete abolition of cash retentions.
Has Carillion’s collapse finally triggered reform?