Construction Industry Late Payments – Are Tier One Contractors Blameless?
I picked an interesting week to add my thoughts to the debate over construction industry late payments. No sooner had I hit ‘Post’ on my blog about how late payments affect social value and the ways we can change how we work in construction than the co-chair of the Construction Leadership Council made a very bold claim about who is to blame.
Who is Abusing Payment Terms?
Speaking to David Price of Construction News, Andy Mitchell stated “I don’t think there are many tier ones at all who are abusing the payment terms and delaying payments”. Instead of pointing the finger at the big boys, Mitchell said most of the major players agreed with prompt payments and that “the problem is that that gets lost as you go further down [the supply chain].”
As I mentioned in my previous blog, my complaints about prompt payments weren’t just levied at the tier one contractors. It is an industry-wide issue, that is true. But those big companies definitely are just as culpable as anyone else. To absolve them of responsibility and lay the blame for late payments on some vague entities somewhere down the structure is not helping solve this industry crisis.
We know that the majority of the tier one firms have shared their payment data with Build UK and from that we also now that none of them can boast an average timescale for payments of 30 days or less. That would at least suggest that something needs to change.
Andy Mitchell’s Views on Construction Industry Late Payments
This strange ‘Get Out of Jail Free’ card for the tier one companies from Mitchell is all the more disappointing because aside from that, he absolutely gets it. Almost everything else he said made complete sense as we fight to help the small businesses that form the supply chain.
He told Construction News “We have to [look closely at prompt payment]; 98 per cent of the companies in this industry are the people who are likely to suffer from that kind of stuff…if you can’t address that, you’re not really working on behalf of the industry, are you?”
He is right about supporting the 98% of the construction industry made up of SMEs, he’s correct that improving cash flow for these parties is the only way to build a sustainable industry and it is spot on to suggest that the government could kickstart this by demanding more of the contractors to whom it awards projects. But we also need to be honest about where the problems lie.
Does the Industry Have its Head in the Sand?
Is Andy Mitchell in denial or has he just been lucky not to have experienced the worst of the payment culprits thus far? I genuinely don’t know, but I hope the latter. The industry in a wider sense does have a tendency to stick its head in the sand when these thorny topics arise.
Last week Bev Dew, Kier’s finance director, claimed his firm was “pretty much smack in the middle” when it comes to tier one payment terms. Of course, the readily available data shows that only one of the big ten companies pays its suppliers later. Kier’s average is 54 days, Costain props up the table on 59 days.
Dew’s argument was that the figures are inaccurate because Kier’s early payment facility. These invoices are all counted as being paid in 90 days even though suppliers can pick up their money after 21 days on payment of a fee. Of course, this would affect the average, but it also opens up a whole new issue. Is charging a small business for the privilege of being paid in a timely manner really the way to solve the industry’s problem? Shouldn’t we expect prompt payments as a matter of course rather than as a premium added extra?
Does this happen in any other industry? I’ve never heard of it, but I would love to know if it does. Leave a comment!
This debate will continue, but I think these recent developments show there is much work to do.