Bosses warn main contractors will hike their prices if clients demand they use project bank accounts to pay their supply chain
Main contractors will hike their prices if clients demand they use project bank accounts to pay their supply chain or stipulate short payment terms, the bosses of Mace and Kier have warned.
The comments come amid increasing concern over main contractors’ payment terms following Carillion’s extension of its standard terms to 120 days last year and moves by public and private sector clients to improve payment through the supply chain.
One of the ways of doing this has been the introduction of project bank accounts, where all suppliers are paid for their work from a single pot, removing the main contractors ability to manage the flow of cash downwards.
Project bank accounts have proved popular with a number of public sector clients and are set for widespread use in Scotland and Northern Ireland,as well as increased use in England and Wales.
But speaking to Building at Mipim this week, Mace deputy chief operating officer Mark Castle said: “The intentions [of project bank accounts] were well meant, but the issue for me is that if we are going to start stipulating that contractors pay their supply chain in 30 days or use project bank accounts - we don’t have an issue with it because we are doing it already - but you have to get the clients to pay within their terms as well.
“You have to bear in mind that if we are to see that coming in there’s a cost to implementing all of this, contractors rely on cash flow.
“What I can see happening is contractors wanting to see some improvement on their margins.”
Castle added that subcontractors had a choice about whom they worked for “particularly as we are coming out of recession”, and that they should reject payment terms they found onerous.
His comments echo those of Kier chief executive Paul Sheffield who also recently warned that project bank accounts could lead to price increases.
Speaking to Building last month Sheffield said project bank accounts would make it “be impossible for tier one contractors to generate significant cash surplus on projects”.
He added: “Traditionally that cash surplus has enabled companies to invest in other developments.
“That will no longer be quite such an attractive option in the future if cash flow is more difficult. You have to ask the question in the long term if prices will have to go up.”
“If your construction business is no longer going to generate the levels of cash that it used to why would you get out of bed for one or two percent?”