New scheme hopes to improve supply chain payment
The government’s Construction Leadership Council has published a new payment charter for the construction supply chain.
The difference between the new Construction Supply Chain Payment Charter (CSCPC) and the old Prompt Payment Code is that companies that sign up to the new version get to be able to used the CSCPC logo to “show that you are serious about good payment practice”.
Most major construction companies eventually signed up for the Prompt Payment Code, after much foot dragging. Larger refuseniks included Clugston and Severfield. However, anecdotal evidence suggests that there is only a sporadic correlation between signing the code and actually paying suppliers promptly.
To date, 19 organisations are listed on the CSCPC website as having signed the new charter (see below).
The declared ambition of the Construction Leadership Council is that by 2025 the construction industry's standard payment terms are 30 days and that retentions are no longer withheld.
The new scheme, like the old one, is administered by the Chartered Institute of Credit Management.
Construction Supply Chain Payment Charter signatories agree that on all new construction contracts they will meet the fair payment commitments set out below:
1 We will make correct full payment as and when due for all work properly carried out, or products supplied, in accordance with the contract. We will ensure any withholding of payment due to defects or non-delivery is proportionate, and clearly, specifically and demonstrably justified in line with the arrangements set out in the contract.
2 We will not deliberately delay or unreasonably withhold payment.
3 For all new construction contracts we will ensure that payments are made to our supply chain not more than 45 calendar days from the end of the Calendar month in which the work is carried out or products are supplied. From January 2018 that will decrease to not more than 30 days.
4 Public authorities are already required to pay within 30 calendar days. On central government contracts, payment will be made to Tier 1 within 14 days, to Tier 2 within 19 days and to Tier 3 within 23 days of the due date, which will be 7 days after the common assessment or valuation date established by the client in the Tier 1 contract.
5 We will either not withhold cash retention or ensure that any arrangements for retention with our supply chain are no more onerous than those implemented by the client in the Tier 1 contract. Our ambition is to move to zero retentions by 2025.
6 We will issue any 'pay less' notices at the earliest opportunity and no later than 7 days prior to the final date for payment.
7 We will have processes in place to enable the effects of contract variations to be agreed promptly and fairly and payments for such variations to be included in the payment immediately following the completion of the varied works.
8 We will make payments electronically unless agreed otherwise.
9 We will use Project Bank Accounts on central Government contacts5 where specified by the client.
10 Where Supply Chain Finance schemes allowing members of the supply chain to secure earlier payment are offered, we will not impose fees or costs for receiving payment within the terms set out in the contract.
11 We will adopt a transparent, honest, and collaborative approach when resolving differences and disputes.
By becoming a signatory to the charter, an organisation agrees to apply the fair payment commitments in its dealings with its supply chain, to be monitored for the purposes of compliance by reporting against a set of agreed key performance indicators (KPIs), and to consider the performance of its supply chain against the agreed KPIs when awarding contracts.
Signatories to date are:
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This article was published on 11 Aug 2016 (last updated on 12 Aug 2016).