The latest survey of construction engineering firms carried out by the Specialist Engineering Contractors’ (SEC) Group Scotland found that SMEs are still suffering from poor payment performance. SEC said that the latest initiatives by the Scottish government, while in the right direction, have not yet had a major impact.
Almost all firms – 90% - that were surveyed backed the idea of a construction regulator with powers to impose penalties on poor payers or, in the case of suppliers, to exclude them from bidding for public sector works.
The report on the survey said that a surprising result was that, overall, there wasn’t a significant difference between the public and private sectors on the time taken to discharge payments.
Just 28% of the firms surveyed reported being paid by public bodies within 30 days; for the private sector the figure was 24%. Where firms were acting as subcontractors on public sector works, over 85% reported that they were not being paid within 30 days; the number was 76% in the private sector.
Almost 47% of firms working for public bodies reported that a tenth of their payments were late. A significant number of firms (19%) reported that at least a third of their payments from public bodies were late.
During the course of last year, SEC Group Scotland carried out an extensive survey on payment practices as they affected engineering firms in Scottish construction. The overwhelming majority of respondents were SMEs. Firms were asked to indicate whether there were differences in payment performance in both public and private sector construction.
Among the other findings was that over 60% of public bodies amend the payment provisions in the standard forms of construction contract and that this often involves extending the payment cycles. The figure for the private sector was 69%.
SEC Group Scotland chairman Eddie Myles called on policy makers to tackle payment abuse in construction as a matter of urgency. He added: “There is overwhelming support amongst firms for a construction regulator to challenge poor payment practices. I, therefore, urge Scottish Government to back this proposal by introducing legislation to create the office of regulator with extensive powers to penalise those guilty of bad practice.”
Ken Lewandowski, formerly co-chairman of the 2013 review of public sector construction, said he was frustrated by the slow pace of progress in curbing payment abuse particularly by the larger construction companies. “I have witnessed at first hand the appalling treatment of small firms in construction when it comes to payment,” he said. “We depend on small businesses to invest in the future of the industry in Scotland. They are primarily responsible for contributing to their communities through offering apprenticeships, increasing local employment and upskilling their workforces. But we cannot expect them to continue such investment at current levels unless we are prepared to address this problem of payment abuse head-on.”
SEC Group Scotland is urging the Scottish government to:
amend the Procurement Reform (Scotland) Act 2014 to require that all public bodies use project bank accounts (PBAs) so that payments to all suppliers are secure. Where PBAs do not apply, public bodies should have a statutory duty to ensure 30-day payments are made to all firms in the supply chain;
legislate to protect cash retentions;
reduce the cost of adjudication so that SMEs can afford to challenge spurious reasons for withholding payments;
legislate to create the role of a construction regulator.