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Seeking out bad practice across the industry

This government appears particularly keen to show off its small business credentials. It has been consulting on a proposal to establish a small business commissioner and small business minister Anna Soubry has a grandiose vision for the new role.

The small business commissioner will create “a long-lasting culture change … that will ensure fair treatment for all”. Will Ms Soubry’s vision be achieved as far as construction is concerned?

The proposed commissioner’s remit only extends to firms with fewer than 50 employees and they will also have to come within one of two thresholds: turnover and balance sheet total. Other firms considered as small or medium-sized enterprises (SMEs)are outside the remit.

The commissioner will have three main aims:

  • providing general advice and guidance to help small firms avoid disputes or resolve them earlier;
  • providing mediation or conciliation services to facilitate dispute resolution, and
  • acting as an “honest broker” in complaints made by small firms against other SMEs and large companies.

The question is whether or not this will make a difference to small construction firms. I hate to disappoint, but I do not think it will make much difference.

The government has used as its model the office of the small business commissioner in the Australian state of Victoria. My own inquiries have revealed that very few small construction firms have made use of the commissioner’s services.

Part of the reason, no doubt, is that there is very robust security of payment legislation in Victoria. Pay when paid is completely outlawed. A firm has the right to place a charge on plant and materials for which payment is outstanding, unless they have been incorporated in the works.

In its consultation document, the government proposes that disputes that would normally be referable to adjudication would not come within the remit of the commissioner. This would exclude most contractual and payment disputes. Unfortunately, small firms tend to steer clear of adjudication since it is now perceived as an expensive process, especially for low-value claims.

It is also difficult to envisage small firms rushing to the commissioner to complain about the practices of those they are dealing with. There is a climate of fear in the industry that would deter firms from making use of the proposed complaints service.

What we need is a commissioner who is proactive. They should be able to seek out bad practice either on their own initiative or by acting on tip-offs or complaints from trade associations. They should be able to impose penalties or require the offender to pay compensation. I fear that, unless more robust powers are given to this commissioner, they will go largely unnoticed.

Professor Rudi Klein is chief executive of the SEC Group

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