All together now...
Can Build UK lead the construction industry towards fairer payment practices? David Taylor reports
For about as long as anyone can remember the UK construction industry has struggled to find a single voice; a flag under which to present a unified front.
The effort has always been frustrated by the sector’s fragmentation. While everybody has an interest in maintaining a healthy, prosperous and progressive construction industry, there are too many other conflicting interests to guarantee much common ground.
Or rather two conflicting interests: those of the employers and the employees.
Margins are always tight in the construction industry and profitability often depends less on how much value you can add and more on how much cash you can claw back. Employers want to get the best possible value from their suppliers and subcontractors. But those suppliers and subcontractors don’t want to sacrifice their livelihoods on the altar of client profitability.
Consequently we have an industry compromised by an uneasy and mistrustful standoff between two interdependent camps; the aggrieved employees constantly fending off attempts by the aggressor client to withhold or defer payment.
Now – finally – there exists an industry body created to bridge that gap and provide that single voice. Build UK was created in September by merging the UK Contractors Group (UKCG), comprising representatives from the UK’s 30 leading Tier 1 contractors, with the National Specialist Contractors’ Council (NSCC).
NSCC was an umbrella body for 40 separate trade associations representing a total of around 11,500 small specialist contractors – the main victims of so-called “subbie-bashing” by the big construction employers.
Subbie-bashing takes many forms, but it invariably has one driving motive: to pay suppliers as little as possible and preferably as late as possible. Late payment – and even non-payment – has routinely been used as a tool for reducing project costs. In the worst cases, spurious claims can allow payments to be withheld long enough to ensure that a beleaguered subcontractor eventually topples into insolvency, releasing the employer from any obligation to pay up.
While such tactics are legally and morally questionable, the legally above-board imposition of cash retentions is frequently abused. Retentions, typically of 5% of the supplier’s fee, are written into contracts, ostensibly as a hedge against post-completion snags and subsequent claims. But the cash retained often never finds its way to the payee, even in cases where the subcontract was completed without defects or snags.
The solution to payment abuse lies principally with the Tier 1 contractors. They provide the work and they are the employers who repeatedly fail to pay their suppliers fairly or promptly.
Combining UKCG with NSCC is regarded by many as nothing short of madness: the two bodies have fundamentally conflicting aspirations.
But Build UK wants to position itself as a problem-solving body, where the fundamental differences can be acknowledged and a solution found through sensible grown-up debate.
“Build UK will bring together the contracting supply chain to consider what best payment practice in construction looks like and present appropriate business models that will result in a thriving construction industry capable of delivering the necessary infrastructure and built environment across the UK,” says the Build UK action plan, published in September 2015.
Its mission, according to the action plan is to: “provide leadership, demonstrate the importance of construction to the UK, improve the image of the industry, enable the right skills in the right place at the right time, facilitate collaboration within the supply chain [and] develop and implement best practice”.
The intentions are admirable, and it might just work. For although the 27 companies of the former UKCG are the biggest employers, they have also, collectively, long acknowledged the need to reform payment practices within the industry.
Most were heavily involved with the Rethinking Construction movement launched over 15 years ago by former BAA chairman Sir John Egan. During the boom years of this century’s first decade, these major contractors flew the ‘teamwork’ flag, promoting early subcontractor involvement, partnering, open-book accounting and supply-chain integration.
The introduction of statutory adjudication under the Construction Act (which came into effect in 1998), the Scheme for Construction Contracts and the banning of pay-when-paid clauses certainly moved things in the right direction. But the good intentions seemed to evaporate in 2008 when the recession hit and main contractors began imposing extended payment terms and retrospective discounts on contracts already agreed.
And of course the very existence of the NSCC has always served as a reminder that payment abuse is always with us. While as a body the UKCG has campaigned for payment reforms, individual members are still regularly accused of the most heinous payment abuses.
Build UK is headed up by chief executive Suzannah Nichol, formerly chief executive of NSCC. Having a subcontractors’ champion in the driving seat is reassuring and Nichol is well-suited to the role, given her declared commitment to negotiated solutions.
“Current payment practices within the industry are holding back the businesses of both main and specialist contractors,” she says. “One of the reasons for the creation of Build UK was that all parts of the supply chain recognised the need for a full and frank discussion on the issue of payment.
“Experience has shown that tackling a fundamental issue, such as payment, in isolation makes progress difficult. We are bringing together the contracting supply chain to consider what best payment practice looks like and both contractor and trade association members fully support Build UK exploring appropriate business models to ensure cash flows throughout the supply chain.
“We have already had a number of meetings specifically to discuss payment terms, retentions and other related issues,” she adds.
At their first meeting, held on 21 October, Build UK members confirmed, among other things, their commitment to the Construction Supply Chain Payment Charter. This is a proposal, thrashed out in April 2014 by yet another body, the Construction Leadership Council, whose members include contractors Laing O’Rourke, Kier and Skanska and clients such as Sainsbury’s, Berkeley Group and British Land.
Signatories to this charter agree to be paying all their suppliers within 30 days by 2018 and to have phased out retentions entirely by 2025. It also includes a commitment not to withhold payments and to make all payments electronically.
Not everybody is satisfied with these promises, however.
Barry Ashmore, a former electrician, a fellow of the Chartered Institute of Arbitration and founder of the Streetwise Subbie website is emphatically unconvinced.
“How can people with such diverse interests come together and speak with one voice?” he asks. “It’s a fragmented industry and you’ve just got to get on with it.”
Ashmore, who provides help and advice to subscribers to his website, doesn’t believe that the Tier 1 leopards could ever change their spots. “They work on wafer thin margins and the only way they can make money is by screwing their supply chain,” he says.
“It’s too easy for contractors to blame their supply chain for all their problems. And you usually find that the ‘problems’ miraculously surface at or around the time of the final payment – when the job’s done,” adds Ashmore.
Far from moving toward a solution, the problem is currently worse than ever, he believes. When challenged, he concedes that there are “some decent Tier 1 contractors out there”, but when asked to name a few, only one name is forthcoming: Laing O’Rourke. “They’re probably the only main contractor we never see complaints about,” he says.
However, Laing O’Rourke is not a member of Build UK.
Another sceptic is Professor Rudi Klein, chief executive of the Specialist Engineering Contractors group (SEC) which represents technical specialists. Klein, a barrister, is well known in the industry for his work to improve employment conditions for subcontractors and is as outspoken as Ashmore on the subject of payment abuse.
“I hope that [Build UK] will be a force for change,” he says. “I support any organisation that tries to do that, but I can’t say I’m very confident. We have an embedded culture that promotes payment abuse and you have to be driven to dislodge that. Change only comes about through a passionate energy…they’ve got a lot to live up to.”
For both Ashmore and Klein, the laudable pronouncements of Build UK are undermined by evidence of continued bad practice by Tier 1 contractors out on site. Klein is especially critical of the continued use of retentions:
“This year alone, the industry’s lost around £30m of retention monies due just to insolvencies upstream. We calculate that since 2007, at least £250m of retentions have been lost this way.”
With NSCC now part of Build UK, Klein says SEC will continue to plough its own furrow: “We are now the only representing body for subcontractors,” he declares. “We are on our own as a voice for specialists and we intend to build on that brand.”
Nichol, however, is adamant that the supply chain can have confidence in Build UK. “The discussions so far have been lively but refreshing and honest and I truly believe that by working together we can, and will, make substantial progress on the issue of payment,” she insists.
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This article was published on 18 Oct 2016 (last updated on 18 Oct 2016).