Organisation’s chief executive warns thousands of SMEs are in “perilous” financial state due to loss of payments they are owed from collapsed giant Carillion, highlighting need for immediate reform
The UK government is being urged by a key building services body to immediately introduce legislation to tackle the practice of late payments within the construction supply chain, rather than delaying potential reforms in favour of voluntary commitments or further consultations.
BESA said that while it has welcomed pledges from both Chancellor Phillip Hammond and business secretary Greg Clark earlier this month to ensure change and a call for evidence on ending late payments in the public sector, urgent action was needed rapidly to support struggling companies.
New BESA chief executive David Frise said he would be urging government to quickly implement clear reforms following on from the announcement of the insolvency of Vaughan Engineering that was a contractor of collapsed construction giant Carillion
The group is owed over £600,000 from Carillion for work completed, with additional contracts also intended to be have been completed over 2018 before the construction giant announced its collapse, BESA noted.
Mr Frise has warned that thousands of SMEs were in a “perilous financial state” due to Carillion’s collapse and that government intervention was required.
He said, “Today there are 160 people facing redundancy directly as a result of Carillion failing to pay Vaughan Engineering for completed work.”
“The government must not stand idly by and watch more companies go under and more people lose their jobs.”
Mr Frise said that BESA and engineering services body the ECA had continued to warn government over the need for payment security reforms that would include use of project bank accounts and ring-fenced retentions as a result of Carillion.
He added, “The government already has many of the tools it needs to tackle this problem. “The Aldous Bill, which seeks to bring about reform of the retentions system, is due to have its next reading in Parliament on April 27. Project bank accounts are being widely – but not universally – adopted; and the emergence of digital payment makes transparency in supply chain finance far easier to achieve.”
“I can’t see why this needs any further discussion.”
BESA said that it was directly representing Vaughan Engineering and a number of other members that are being directly impacted by Carillion’s collapse.
Vaughan Engineering had been continuing to pay its workforce while not receiving support from Carillion’s liquidators of the government. BESA added that the group was losing money as a result of developments that were no fault of its own.
Criticism was also raised by Mr Frise about the amounts of money going to PwC in its role as administrator of Carillion at a time where the construction supply chain was facing intensified financial pressures due to the company’s collapse.
He said, “PwC blithely informed the industry that none of the payments outstanding on January 15 [when Carillion went under owing an estimated £2bn to about 30,000 suppliers] would be paid, but are, no doubt, receiving their own multi-million pound fees without delay while thousands of SMEs face ruin.”
“We have had multiple voluntary late payment initiatives over the last two decades – none of which proved of to be of any use whatsoever in the face of notorious late payers like Carillion”.
30 day payments
BESA also pointed to grave concerns raised by MPs involved with investigating Carillion’s liquidation over the Prompt Payment Code (PPC) that the company was a signatory of.
The PPC was introduced in 2015 with the aim of encouraging public sector buyers and suppliers to pay valid invoices that are not being disputed within 30 days. The code was also intended to apply to prime contractors and sub-contractors.
Mr Frise said that the Carillion was found by MPs to have forced its own supply chain contractors to abide by 126 day payment terms, despite signing up to the PPC as a condition of winning public sector work.
Business secretary Mr Clark told the MPs looking at the liquidation that the code had been inadequate and required changes. However, Mr Clark said that a “specific timetable” was not in place to address concerns raised.
Mr Fries argued that Carillion had been found by MPs to have received over £20m in funds for its work as administrator since the company’s collapse, resulting in condemnation from some MPs present.
BESA argued that immediate action to address supply chain pressures could begin with ensuring the passing of the Construction (Retention Deposit Schemes) Bill into law.
A second reading of the bill, which was introduced to parliament by MP Peter Aldous in January is scheduled for April 27.
The bill has been co-devised by a number of industry bodies to make it mandatory for any cash retentions to be held in an accredited third-party deposit scheme to ensure payments are received for work completed.