Trade body calls for new ombudsman to enforce fair pay rules after survey reveals late payment is rife

Rudi Klein

More than one in three public-sector clients fails to pay first-tier contractors within 30 days of being invoiced, according to new research.

An investigation by the Specialist Engineering Contractors’ (SEC) Group has found 38% of councils, universities, emergency services and NHS Trusts breached late payment legislation.

It said Freedom of Information Act requests to the majority of public-sector bodies also revealed that just 25% had any way of tracking the timeliness of payments.

Meanwhile, 90% of respondents operated a cash-retention system, in which part of progress payments were withheld - ostensibly as a security measure, but primarily to improve their own working capital.

SEC Group, which is an umbrella body representing 60,000 specialist contractors, called for a package of measures at a House of Commons event last night.

It wants all payments for public sector construction work to be settled within 30 days of the end of the month it was done, and for organisations to be barred from public-sector work for a minimum of 12 months if they fail to pay their supply chain within 30 days.

SEC Group is also calling for the creation of a new public-procurement ombudsman to promote good practice, which chief executive Rudi Klein said should be “a high profile role”.

“The regulator would have the power to challenge poor practices and to order recalcitrant public bodies to mend their ways,” he said.

“There is an expectation that construction SMEs will invest in skills and training and smart technologies with the efficiencies thereby created directly benefiting the public sector. 

“But this is not achievable unless robust measures are adopted to improve cash-flow throughout the supply chain.”

Speaking at last night’s event, Oldham East and Saddleworth MP Debbie Abrahams said unfair payment practices were as unethical as tax evasion.

The public sector should be setting an example in how to manage and treat its construction supply chains and should be the foundation on which we build a fair payment culture in this country,” she said.

SEC Group’s research also found that the vast majority of public-sector clients - 86% - did not make use of the PAS 91 pre-qualification questionnaires, which placed additional time and financial burdens on SMEs.

SEC Group’s six-point plan for fairer payment

All payments under public-sector construction contracts should be made within 30 days of the end of the month in which the work was carried out;

Any organisation failing to pay its supply chain within 30 days should be excluded from further public sector work for a minimum of 12 months;

Legislation should be introduced to require all cash retentions to be placed in trust - in a segregated account - for the benefit of the firms providing the monies;

Targets should be set for the introduction of project bank accounts across the public sector, to ensure that the supply chain is guaranteed payment;

The pre-qualification process should be standardised across the whole of the public sector through the introduction of a British standard; and

The office of Public Procurement Ombudsman should be created to monitor and police poor practice.