Carillion has increased its maximum payment terms to suppliers to 120 days but operates this alongside an early payment facility. The NSCC has sought, and finally obtained, clarification on how Carillion’s early payment facility (EPF) works.
“It has taken us a while to understand Carillion’s early payment facility and supplier incentive scheme,” said NSCC chief executive Suzannah Nichol. “We have met with Carillion representatives to discuss its objectives and they have clearly stated that their intention is to pay their supply chain early. We have also taken legal advice to interpret the various documents so that we can advise our members. It has taken a lot of effort and, if we have found it hard, I am not sure how a busy specialist contractor is supposed to understand it."
Carillion says that more than 200 suppliers have already signed up or are in the process of doing so. According to Carillion, more than £126m has so far been paid to suppliers earlier as a result of the EPF. However, the NSCC is warning its member organisations about the pitfalls to beware of.
By signing up to the scheme, suppliers can receive payment earlier than 120 days by applying to the appropriate bank after their invoice has been approved by Carillion. The bank will then pay suppliers directly minus a charge which is set out on a sliding scale depending on how early they wish to be paid. Carillion says it will reimburse bank charges paid by suppliers for accessing their money, but this is not written in any contracts anywhere and so subcontractors are exposed to the risk of bank charges.
Among NSCC’s other concerns about the EPF scheme are:
- Carillion has the right to end the EPF agreement and stiff subcontractors with 120-day payment terms on existing contracts.
- Not all suppliers will be entitled to join the EPG scheme but all will be subject to 120-day payment terms.
Specialist Contractors who bank with Lloyds TSB should take extra care when deciding whether to sign up to the EPF, the NSCC says, as special conditions apply with that bank. Lloyds TSB can set off its liabilities under the agreement against any liability the subcontractor owes Lloyds TSB as well as combine and consolidate any of the subcontractor’s accounts with Lloyds TSB. This could potentially allow Lloyds TSB to set-off amounts due under the EPF from other liabilities the subcontractor has with Lloyds TSB, including any overdraft facility.
NSCC chief executive Suzannah Nichol said: “The way in which Carillion have told us they are operating their early payment facility means that specialist contractors are being paid in 45 days at no cost to them. But let’s not kid ourselves; 45 days is only ‘early’ when your standard terms are 65 days.
“NSCC believes, and has consistently stated through its Fair Payment Campaign, that 30-day payment terms are normal. We cannot see why Carillion has extended its payment terms to 120 days; it just complicates an already complicated payment mechanism! Contractual payment terms of 120 days are unacceptable both commercially and ethically.”