Marking a supply chain revolution, Network Rail is introducing new terms to its contracts ahead of the upcoming five-year funding period (Control Period CP6, 2019-2024). Improved payment terms for subcontractors are among a number of reforms being made to improve life for smaller suppliers in the rail sector.
Project bank accounts are also being introduced for some major rail projects, meaning payments to subcontractors can be agreed by the client and scrutinised more closely.
Network Rail said that it want to “create a healthier environment for suppliers at all levels”.
Having implemented a best practice ‘Fair Payment Charter’ and applying these principles to its own payments to suppliers back in 2011, Network Rail now wants to push the benefits down the supply chain. It said the decision to formalise this regime for CP6 was ‘the next natural step’ and something its major contractors supported.
Commercial director Stephen Blakey said: “The Fair Payment Charter was about recognising that cash flow is the ‘life blood’ for every supplier by committing to pay for goods and services in a fair, predictable and timely way. Harnessing the support we have already received from our major suppliers, we have simply taken the next natural step and formalised that approach for CP6. Culturally, it sends a huge signal as to the value we place on a sustainable supply chain and the way we want to do business.
“We recognise the challenges faced by smaller suppliers and are in a position to influence the way work on our railway is delivered and paid for. It is in our interest to have a sustainable supply chain at all levels – they are vital to the successful delivery of our projects and the safe operation of Britain’s railway.”
Removing retentions, which withhold large sums of money from subcontractors until project completion, is expected to place smaller suppliers in a stronger financial position, Network Rail said. Being paid promptly, within 28 days of completing work, also means that contractors are owed a smaller amount of money at any one time, again strengthening their cash flow.
“The changes will make a significant difference to smaller suppliers in particular, who rely on regular cash flow to operate successfully. We want to foster an environment that is fair, sustainable and encourages growth; but this is not at the expense of our larger suppliers,” Stephen Blakey added. “The changes are something our major contractors are very supportive of and we continue to work closely with them to help manage this effectively. For instance, we have created best practice T&Cs to adopt with their own supply chain.
The introduction of project bank accounts should also provide greater certainty and reassurance to SMEs, as it means payments made to the project by Network Rail are transparent and the distribution of any onward payments to subcontractors is also visible.
Contractors welcomed the new requirements. Alastair Reisner, managing director of the Civil Engineering Contractors Association, said: “Real change in industry requires real leadership. Since its Fair Payment Charter, Network Rail has provided this leadership. It has worked with its suppliers in a managed process to roll out prompt payment and is proving that, where there is a will, clients and industry can work together to axe unwanted and costly retentions.”
Colas Rail chief commercial officer James Quinnell said: “Colas Rail fully supported the adoption of the Fair Payment Charter and embedded such in its supply chain contracts at that time. We therefore welcome Network Rail’s desire to ‘contractualise’ this commitment across its supply chain.”
Steve Cocliff, managing director of VolkerRail, said: “VolkerRail has always been an advocate of fairness in everything it does and was one of the first to sign up to the fair payment charter in 2011. We are therefore very keen to support the leadership shown by Network Rail in its goal to abolish retentions and to fix payment terms at 28 days for the vitally important SME community.”
Amco managing director Andries Liebenberg said: “Network Rail’s introduction of subcontract payment terms and abolition of retentions is wholeheartedly endorsed by Amco. Through this, Network Rail are recognising the value and contribution of the whole supply chain, and extending the collaborative principles already established through the Fair Payment Charter. This is an industry leading example of how to embrace the supply chain and demonstrates how we can all work together to bring efficiency, value, and a great service to our collective stakeholders and customers.”