Last month we reported on the perilous position of several major contractors following the shocking news of Carillion’s £1.15bn half-year loss. Other major contractors, including Interserve, Galliford Try, Laing O’Rourke, Bechtel and Kier are also now languishing in the red.
If one of these major contractors went bust tomorrow, everyone would know about it. The banks would take a massive hit, and even the general public might sit up and take notice. And hundreds of businesses further down the supply chain would suffer.
Many of these suppliers are already suffering. New research suggests that the noble aspirations of Latham’s Constructing the Team and Egan’s Rethinking Construction manifestos two decades ago are long forgotten and that subbie-bashing is alive and well.
The research was carried out earlier this year by Christopher Bennett, himself a specialist contractor, as part of a BSc degree course in construction management at Liverpool John Moores University.
With help from online campaigner and advisory service StreetwiseSubbie.com, Bennett surveyed a sample of 506 employers, contractors, specialist contractors and materials suppliers to find out the most common threats to a harmonious and efficient construction supply chain. The results of his research are not encouraging.
The study reveals that disputes continue to loom large, with 55.9% of those surveyed saying disputes ‘occur frequently’, and a further 37.75% saying that they ‘occur occasionally’. That means that almost the entire industry is affected by disputes.
Construction is a risky business and contractors operate on wafer-thin margins. It doesn’t take much to go wrong before those wafer-thin margins become huge financial chasms and, as ever, it seems the most common way for an unscrupulous contractor to plug that yawning gap is to claw the money back from its supply chain.
An overwhelming 82% of Bennett’s survey sample said that late payment is the main cause of disputes.
Even on public sector contracts where payment is supposed to be made within 30 days, subcontractors are often left waiting for their money. Without government action to enforce its own contract terms, the payees are powerless: 47% of those surveyed said they felt they were not in a position to challenge payment terms that were longer than 30 days.
“So much for the claim that main contractors and specialist contractors sitting round the same table would resolve this problem,” says Barry Ashmore (picture below), one of the founders of StreetwiseSubbie.com. Industry body Build UK, created two years ago by merging the UK Contractors Group with the National Specialist Contractors Group, has had zero impact, he says.
Many respondents to Bennett’s survey expressed alarm at the emergence of a “new breed” of commercially aggressive quantity surveyors, who are “motivated to maximise profit” and “seemingly on a bonus to claw back cash”.
“As a consultant who has spent the past 27 years trying to resolve construction disputes I can tell you that these aggressive QSs have no moral compass. It’s just a game; they are paid to do a job and that job is to screw the subbies,” says Ashmore.
“It may suit the contractors if they don’t pay, but it causes major impact on the specialist contractors, leaving them with little capital to run their businesses, let alone invest in training or the future of the industry.”
He continues: “The hypocrisy of some contractors is staggering. Whilst they publicly support initiatives to address the impact of stress and mental health issues, their QSs are potentially one of the root causes.
“When a specialist contractor goes bust – and thousands have – then it affects the supply chain as a whole, the merchants and the local economy, even the community where people live and shop.”
Ashmore is also dismissive of the late-payment remedies available. Almost 43% of the subcontractors responding to Bennett’s survey say they “sometimes” suspend work and charge interest on late payments. But over 70% of them believe that doing so damages their relationship with the main contractor.
“Unless you have been living on Mars for the last 20 years, you will know that the contractor doesn’t do any actual work. It is simply the conduit between the paying client and the subbies who are the ones who actually invest their cash, employ the workforce, buy the materials and put the buildings together.
“Construction is gradually destroying itself because certain contractors don’t care about another subbie going to the wall. They relish it, because they get to keep their cash. And because no one dares to make the link between this ruthless treatment and people’s lives, and the overall state of the industry, then the vicious circle of destruction continues unabated.”
More than 95% of respondents to Christopher Bennett’s survey said that neither the trade associations nor the government are doing enough to tackle payment abuse in the construction industry.
So Barry Ashmore is calling on subcontractors to:
- drop their ‘victim’ mentality
- refuse to work for poor or negative margins
- believe in themselves as the backbone of the industry
- say no to main contractors’ onerous terms
- get behind StreetwiseSubbie’s #Buildgate campaign
The #Buildgate campaign is aimed at encouraging all parties to help promote StreetwiseSubbie’s Fair Treatment Charter and call for the adoption of all the recommendations of the all-party parliamentary inquiry into late payments conducted by Debbie Abrahams MP in 2013.
For more information or to add your voice #Buildgate visit StreetwiseSubbie.com or
This article was first published in the November 2017 issue of The Construction Index magazine, which you can read for free at http://epublishing.theconstructionindex.co.uk/magazine/november2017/
UK readers can have their own copy of the magazine, in real paper, posted through their letterbox each month by taking out an annual subscription for just £50 a year. See www.theconstructionindex.co.uk/magazine for details.