The Department for Business, Innovation & Skills published a new payment charter in April. It was agreed by the Construction Leadership Council – a government-appointed body responsible for delivering the industrial strategy for construction, referred to as Construction 2025.
This new charter follows one published in 2007 by the (then) Office of Government Commerce, now part of the Cabinet Office (responsible for central government procurement). The 2007 charter applied only to the public sector and required payments to be made within 30 days. Unfortunately compliance with this charter was patchy. By 2010, the government had made fair payment a contractual obligation.
All central government procurers were required to ensure that payments to subcontractors and sub-subcontractors were made within 19 days and 23 days respectively of the main contract payment due dates. To achieve this, the Cabinet Office mandated the use of project bank accounts (PBAs) unless there were compelling reasons not to use them.
PBAs are ring-fenced accounts into which the client makes payment of certified or authorised amounts. The lead contractor identifies payments due to firms in the supply chain. The bank then makes payments electronically out of the account to all firms simultaneously. The government has now exceeded its target of putting through £4bn worth of spend through PBAs by 2014.
So what will make the new charter succeed? Before answering this question we should consider briefly what’s in this charter. The charter requires signatories to adhere to 11 fair payment commitments. The key commitment is to achieve 30-day payments by January 2018. Another commitment is that by 2025 there will be zero retentions. Back to our question. The only way for it to succeed is to have in place the following:
- Signing up to the Charter should be a pre-qualifying criterion for public sector works.
- A yellow card/red card system should operate in the public sector for those failing to comply: a yellow card is a warning of non-compliance and a red card should disqualify a firm from working in the public sector for a certain period in the event of continued non-compliance.
- Vince Cable, the business secretary, should write to the top 100 private sector construction clients to invite them to sign up and enforce compliance along the supply chain.
- Progress on PBAs should be maintained.
Unless measures such as these are put in place, this new Charter will be no more successful than the previous one. We cannot afford to let this happen
Professor Rudi Klein is chief executive officer at SEC Group