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Pay reform warning issued over fears of another Carillion-scale collapse

BESA argues that a failure to meaningfully address payment issues such as retentions reform is compounding concerns about the possibility of further major construction sector insolvencies

Fears across Whitehall of another insolvency of a major construction group, similar in scale to the collapse of Carillion last year, reflects a continued lack of political action on payment practices, BESA has warned.

David Frise, chief executive of the association, has said that failure to reform industry payment practices has resulted in “broken buildings and broken people” across UK construction. He said this has remained the case even after Carillion entered in to liquidation in January 2018, leaving huge amounts of payments unsettled.

Speaking ahead of next week’s General Election, Mr Frise said he hoped that any future government would commit to tackle longstanding HVAC and construction industry concerns about late and lost payments.

He said during the recent BESA National Conference, “The huge burden of debt created by the ongoing abuse of cash retentions is forcing many SMEs out of business and robbing our country of their vital expertise.”

Mr Frise claimed that civil servants in Whitehall were terrified about the impact that another financial collapse of a major construction group – similar in scope to Carillion – might have on vital public sector infrastructure plans. He added that such an insolvency remained “very possible” due to a lack of clear commitment to payment reform.

A range of trade bodies with representation in the HVAC sector have campaigned for a number of years for legislative reforms to mandate ringfenced retention payments and the wider use of project bank accounts to ensure that any money owed for completed work is protected.

Mr Frise has argued that a failure to address these issues reflected wider concerns raised by dame Judith Hackitt in the Independent Review of Building Regulations and Fire Safety. Dame Judith concluded in her findings last year concluded that there was wide ranging failures in how buildings and their systems are designed, installed and maintained.

Mr Frise claimed that a genuine revolution was required and should be anticipated in response to the issues identified by Dame Judith’s review. The findings were highly critical of a general “lack of enforcement, competence, compliance and failure to take responsibility”, he added.

Mental health fears

BESA also cited the findings of a recent survey of 600 hundred business owners working across the building services sector that found a significant number of examples of negative mental health impacts from bad payment practices.

Debbie Petford, director of legal and commercial with BESA, said that concerns raised in the survey about stress and mental health impacts could be better tackled by legal safeguards to ensure money is protected in the supply chain.

She pointed to draft legislation BESA helped to draft that was introduced to parliament by MP Peter Aldous shortly before Carillion entered liquidation. The bill, which seeks to require retentions to be helped in accredited third-party deposit schemes, received a single reading in parliament. However, all subsequent readings planned as part of the Private Member’s Bill convention have been delayed during the last parliament.

Ms Petford said BESA hoped to see the next government finally introduce similar legislation around retentions.

She said, “If the supply chains needed to deliver projects are continually disrupted by poor cash flow and insolvencies – how can you get the work done on time, on budget and to a sufficient quality?”

“Getting the built environment right for the future will deliver an immediate economic dividend and address one of our country’s great social injustices – the fact that people are forced to live, work and raise families in sub-standard buildings.”

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