Construction suppliers and subcontractors working on Government contracts are often left waiting for payments “for months at a time”, despite a client pledge to pay main contractors within 10 days, according to a leading trade body.
The Forum for Private Business, which represents smaller companies, has taken up the case of Glasgow-based EG Heating and Plumbing, which was recently forced to wait 60 days to be paid by Interserve Defence despite the construction company having been paid by the Ministry of Defence (MoD) within 10 days.
"For many smaller subcontractors this is the real story behind the commitment to prompt public sector payment," said the Forum's head of policy Matt Goodman. "What is the point in main contractors being paid within 10 days if firms further along the supply chain have to wait considerably longer for their money?
"Passing on prompt public sector payment throughout the supply chain would not only help more small firms maintain a healthy cash flow, it would encourage more businesses to bid for public contracts."
Using Freedom of Information (FoI) legislation, the Forum asked the MoD to provide details of payment times to suppliers.
It replied that it is ‘fully committed to paying 90% of valid invoices' within 10 days and that, since March 2009, it has ‘consistently exceeded' the target.
The MoD also said that the latest figures show that 97.5% of invoices submitted by all suppliers were paid ‘within 10 days of receipt'.
It added that main contractors' payments to subcontractors should be made ‘within a specific period not exceeding 30 days from receipt of a valid claim as defined by the subcontract requirements'.
"The danger is that this is the tip of the iceberg – the issue is certainly not restricted to the any one sector," added Goodman. "We need to build on the work done to create Prompt Payment Code so that timely payment, in full, becomes the norm across the UK.
"The risk is that that more firms go under because they are unable to maintain any kind of cash flow because of late payment from larger companies."
"While we welcome the commitment to reduce public sector payment terms, this doesn't always work in practice," said EG Heating and Plumbing director Eleanor Grant. "Small companies like ours are normally at the bottom of the supply chain so don't experience the prompt payment enjoyed by main contractors.
"In addition, most contracts are subject to 5% retention, with 2.5% released on practical completion of the works. The defects period on Government contracts can be as much as 36 months. And there is the real risk that retention monies could be lost in the event of insolvencies elsewhere in the supply chain."
The Forum has raised the issue with Peter Luff MP, the Minister for Defence Equipment, Support and Technology.
It has suggested that, by ensuring it is passed along the supply chain, prompt payment could be used as an incentive for more small businesses to subcontract on government-sponsored projects.