Under the plan, Defence Estates will release money to prime contractors only when they have settled with their subcontractors. This means that prime contractors will be paid in arrears for the length of their contracts.
Currently, clients pay contractors, which hold the money until work is completed to their satisfaction. Only then are subcontractors paid.
A source at Defence Estates confirmed that subcontractors would receive payment before prime contractors. “We hope it incentivises prime contractors,” said the source.
Consultants hoping to become prime contractors have reacted angrily to the proposal. The director of one consultant said: “It is an issue because we don’t sit on hordes of cash like main contractors do.”
He added: “Although this is still just a proposal, if Defence Estates insist on it, then it will become an extra cost. We would have to borrow the money and that might put an extra 1% on the contract.” The consultant added: “It will not represent good value for money.”
We don’t sit on hordes of cash. We would have to borrow the money
Director of a Consultant Candidate for MOD Work
The consultant recognised the problems with the current payment regime and advocated a compromise position. “We will agree to pay our subcontractors within days or even hours of being paid. If we don’t, we will agree to be penalised. Alternatively, we will put the cash in a special client account.”
The consultant also argued for the inclusion of a set-off clause to allow a contractor to hold off payment to a subcontractor if it claims it is owed money by the subcontractor.
The consultant said that with the first three prime contracts reaching bidding stages, the contractual terms and conditions had to be sorted out quickly. Defence Estates said they would be finalised before Christmas.
One main contractor bidding to be a prime contractor was phlegmatic about the proposals.
He said they included a payment system in which prime contractors were paid when project milestones were reached or when contractors had paid subcontractors, whichever was the lowest value. “It’s heads they win and tails we lose,” he said. However, he added that: “There is no problem paying subbies quickly, as long as we are paid equally quickly.”
