ECA Group CEO Steve Bratt discusses late payment .
I was asked recently what I regarded as the main issue affecting our industry. The answer was simply one word – payment.
Despite more than two decades since Latham, Egan and others attempted to move construction towards collaborative working – or at least to describe how it can be done – late payment and other payment issues are still affecting thousands of businesses across the construction supply chain.
A number of well-intended codes, charters and initiatives have attempted to tackle the issue, but the collaboration or downright compromises that underpinned their creation hasn’t led to significant improvements in the construction industry’s payment culture.
As a result of determined lobbying in recent years, we now believe that senior politicians understand the problem in principle, and particularly the need to help SMEs to be paid properly. The past two years has seen the ECA meet with a range of senior politicians to discuss late payment – including Michael Fallon MP and Francis Maude MP, who were both Cabinet Ministers in the last administration. Every politician we spoke to agreed with our views about the negative impact of late payment on commerce, investment and innovation.
One high-profile payment initiative introduced during the previous Coalition was the Construction ‘Fair Payment Charter’ (although this wasn’t initiated by the Government, it was introduced as part of an overall construction strategy in partnership with industry). Sadly it hasn’t had anywhere near the success SMEs were looking for. Its clear failure to make a practical difference may even have been locked in from the start because of loose commitments and a total lack of clarity around what signing up to it actually entails. Its best legacy might be that it signalled recognition, even among clients and the commercial construction sector, that ‘good’ payment terms include under 30 day payment. It is not so long ago that such a statement would have been subjected to derision from various parts of the industry.
A much better effort made by the previous Government to improve the UK’s payment culture was the introduction of the Public Contracts Regulations 2015. The Regulations are a welcome step towards resolving wider payment issues in the public sector supply chain, but there are still questions about how this will translate in practice to the construction sector.
Another initiative from the previous Government said that from April 2016, large companies will be required by law to publish key indicators of their payment practice, covering:
· payment terms
· average time taken to pay suppliers
· proportion of invoices paid beyond agreed terms
· proportion of invoices paid
o in 30 days or less
o between 31 to 60 days
o beyond 60 days
· any late payment interest owed and paid.
Under the latest planned initiative, large firms will have to publish the legally required information to a digital location such as an online portal, which will be publically available. Such a portal will enable data to be collected on dispute resolution processes, e-invoicing, supply chain finance and preferred supplier lists. If it is introduced, this will help to make payment performance a boardroom issue.
Companies will also need to report on their membership of Government-backed payment codes of practice such as the government-backed Prompt Payment Code. This voluntary Code now also promotes 30-day terms as standard, with a 60-day maximum limit.
These voluntary initiatives now underlines two key principles – that under 30-day terms are the widely accepted payment norm, and 60-days is a maximum payment period, not a norm.
There is yet more. The newly elected Government quickly announced that it will set up a Small Business Conciliation Service, and we await further details of how this will work.
Does all this signify good progress with resolving the payment issue? For me, the answer still looks very much like ‘no’. I believe that a truly effective and sustainable solution to ensuring fair and prompt payment is outlawing poor construction supply chain payment practice, rather than trying to tidy-up, much less add to, a nest of legal and voluntary initiatives.
The new Government is highly deregulatory, so it will take some convincing. But we trust that it will see that some types of regulation will allow businesses not only to survive but can also underpin the business environment in construction, supporting productivity, innovation, investment and recruitment, in a sector that is now very short of skilled capacity. When it comes to a fundamental issue like payment, once we have enshrined ‘good’ in law, we can then harness voluntary initiatives to show what ‘best’ looks like.
