Specialist Engineering Contractors’ (SEC) Group calls for fresh legislation to guarantee prompt payments for public and private sector work
The government has said it is committed to driving up use of project-specific bank accounts when procuring construction services for public sector projects amidst warnings over cash flow concerns facing engineering contractors.
The claims have been made as a contractor body representing specialist engineers such as those working in the heating and cooling industries has urged Whitehall to help introduce new legislation to tackle delayed and late payments. This would include mandating 30-day payments to contractors for services provided, as well as ensuring project-specific bank accounts are in place for all public sector work to aid small and medium-size enterprises (SMEs).
The Crown Commercial Service (CCS), which provides advice and planning on procuring commercial services for the public sector, said it was working to address concerns over sustainable cashflows for SMEs.
A spokesperson for the organisation claimed it was working with bodies that procure construction services for the public sector to expand take up of project bank accounts with the aim of ensuring “more transparent and certain payments” across the supply chain.
“Since 2015, public sector bodies have been required to pay valid, undisputed invoices within 30 days and publish annual reports on their payment performance. In addition, the government restated its long-standing policy commitment to pay 80 per cent of undisputed and valid invoices within 5 days with the remainder paid in 30 days. Departments are required to report their performance against these payment targets on a quarterly basis. GOV.UK and CCS monitors these,” said a CCS spokesperson.
“Earlier this year, we announced that 32 of the government’s largest suppliers had signed the Prompt Payment Code, giving a boost to thousands of SMEs in the supply chain.”
The code sets out guidance to ensure payment of valid invoices in the public sector within 30 days and requires prime contractors to meet the same commitments for subcontracts.
However, the Specialist Engineering Contractors’ (SEC) Group, which supports SMEs working in the construction supply chain, has argued this month that existing cashflow issues are not sustainable for the industry.
Particular concern was noted around late and lengthy payment periods, which are requiring company directors to invest funds to support businesses in light of late payment.
SEC argues the matter has been made worse by a lack of access to reasonably priced credit. The organisation has therefore called for fresh legislation to introduce mandatory 30-day payments among other measures such as ring-fencing cash retentions.
The contractors’ group, citing findings from finance group Funding Options, said directors of construction businesses had lent their companies £38m in 2015/16. This was up from £29.7m in 2013/14.
SEC Group chief executive Professor Rudi Klein said that cashflow has become a critical issue for contractors, putting strain on business owners to cover shortfalls.
“These companies are taking longer and longer to pay their supply chains with SMEs having to spend the bulk of their contract values up front before receiving any payment,” said Professor Klein.
SEC argued that some of the UK’s largest construction firms such as Carillion have been facing high profile problems with debt.