Tier one contractors continue to pay their suppliers way later than agreed and withhold retention monies rightfully owed to the suppliers – just like Carillion did.
UK construction and services giant Carillion went into administration in January 2018 owing £7bn in total, including £2bn to subcontractors and suppliers, which they lost as a result of the liquidation.
The managing director of one Carillion supplier said: “We came as close to going out of business as you possibly can. It wasn’t just the money they owed us, it was the detrimental effect it had on our order book, and letting people go. When Carillion went under, other companies started to hold onto cash longer.”
Other business and industry leaders are concerned that the core issues relating to late payment and retentions have still not been addressed.
Paul Antino, managing director of electrical contractor NRT Building Services Group, said: “Like many firms, average payment terms for monies owed to us are between 45 and 60 days. In the past 12 months, two of our existing clients have asked us to go to 90 day payment, which we declined and have chosen to no longer work for those two companies, but that’s a tough decision.
“Some of the businesses we work for offer earlier payment on extended payment terms in exchange for a fee of up to 3% to get paid on time. However, our profit margins not much more than 3%, making this completely unviable and unfair in any case.
“We spend a lot of money investing in training and apprentices, but this is unfortunately one of the first areas we need to cut back on when we are paid late.
“In terms of retentions, as a business we currently have £252,000 being held, of which £117,000 is work currently ongoing and £135,000 is jobs that are finished with no outstanding problems.
“Sometimes your money can be held in retentions through no fault of your own. On a construction site there could be 20 different trades that participated, and your money could be held back because somebody else has not resolved a dripping tap, for example. Despite the Construction Act, pay when certified is still rife.”
Rob Driscoll, business director of the Electrical Contractors Association (ECA), said: “One year after Carillion’s collapse, thousands of SMEs are still feeling the commercial impacts of lost payments and business uncertainty, in addition to those who were wiped out in 2018.
“Stopping payment abuse at source is critical to UK productivity and growth, and Government should urgently back legislative reform to eliminate the abuse of SMEs.”
The ECA is one of the sponsors of a private member’s bill being piloted by Peter Aldous MP to reform of cash retentions, protect the supply chain, and achieve under 30-day supplier payment.
“Political support for the Aldous Bill, which would see cash retentions held in trust and protect suppliers from upstream insolvency, has surged in recent weeks with over 250 cross-party MPs now in favour,” Rob Driscoll said.
Paul Antino said: “If the Aldous Bill enters into law, this could make a massive difference by ensuring monies owed to us in cash retentions are not unfairly withheld from our business.”