Contractors’ payment track-records will be scrutinised under contract terms announced this week.
Ministry of Defence procurement minister Lewis Moonie has warned prime contractors that they will be thrown off projects if they fail to pay subcontractors on time.

Speaking at a Defence Estates conference on prime contracting in London last week, Moonie said: “We’re giving contractors major privileges with prime contracts and we will make sure they stick to what we say. Major contractors will have to show they have paid their subbies. If they fail to do so, they will be in breach of contract.”

He added: “I’ve seen small companies put out of business by main contractors failing to do things. I’ll do everything in my power to ensure that small and medium-sized companies are treated correctly. We will talk to the supply chain of potential bidders for schemes to check they are being paid on time elsewhere.”

Moonie said he wanted an end to the adversarial way the industry operated.

He added: “We’re disappointed with the construction industry, which too often runs over time and over cost. We should be able to plan a project with more certainty.”

The conference, which was attended by more than 250 contractors’ representatives and consultants, also heard Defence Estates commercial director Ted Pearson announce a new tranche of prime contracts with a combined value of £400m.

Pearson did not give a date for advertising the contracts, but said prime contractors would be appointed in less time than it takes to appoint a contractor under the private finance initiative.

Pearson also expanded on Moonie’s comments about the terms and conditions of prime contracts.

We’re giving contractors privileges with prime contracts. We will make sure they stick to what we say

Lewis Moonie, MOD Procurement Minister

He said that, under the contracts, payments would be released to contractors as preset project “milestones” were passed. Savings the contractor achieves on a phase of the project will be shared with the client. However, at the milestone or interim-payment stage, the prime contractor would either receive the value of the milestone or actual costs, whichever is less. Any savings will be paid at a later stage, possibly as late as a year into the project, or after its completion.

Losses will be shared between clients and contractors up to a prearranged figure, after which they will be borne by the contractor.

A number of contractors reacted coolly to the conditions.

Neil Smith, technical director at Laing, said: “We’re slightly disturbed. The MOD wants an atmosphere of trust and collaboration, but the new terms and conditions are dogmatic and dictatorial. We’re not convinced it can work in a competitive environment.”

Laing is working on the Wattisham Barracks prime contract pilot project.

Smith said the new guidelines tipped the balance of power too far in favour of the client. “If anything goes wrong, the only person that suffers is the contractor. There appears to be a lack of trust on the part of the client. The whole tenor is surprisingly negative against the contractor.”