Hansford: Payment charter will show up bad payers and improve industry

Peter Hansford
23 April 2014

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Government chief construction adviser Peter Hansford debates with ACE chief executive Nelson Ogunshakin and says the new payment charter is a vital step on the way to dealing with construction’s reputation as one of the worst industries for payment across the country.

I read Nelson Ogunshakin’s Opinion piece in Infrastructure Intelligence on 16 April with interest.

Starting at the end of that article, I wholly agree that we should move away from bad practices.  The Construction Supply Chain Payment Charter is clear evidence that the Construction Leadership Council is serious in its ambition to tackle difficult issues. No one would pretend that changing the payment culture in the industry is an easy or quick win – but the Leadership Council has been clear since its very first meeting that this was a priority issue that it should tackle.

Nelson asked a series of questions which I will endeavour to answer.

What is the purpose of having a new Government Payment Charter, which is voluntary, with no enforcement mechanism built in?

The first thing to say is that this is not a Government Charter, but one that has been developed by the Institute of Credit Management and key players from across the industry.

Time and time again, the construction industry comes up as being one of the worst industries for payment across the economy. Many of the responses to the recent “Building a responsible payment culture” consultation were from small and medium-sized companies in construction supply chains. The Leadership Council wants to do something about that, using members’ own businesses to set an example and encouraging others to do likewise. So it is businesses themselves from across the whole supply chain that will be promoting this charter. This is about leadership and culture change – and I do not believe that is something which we can “enforce”.

Why are we revisiting again when previous charters have not been fully adopted by the industry and government?

I think Government is doing a very fair job in the steps it is taking to ensure good payment practices across the public sector and I suspect the Government’s response to “Building a responsible payment culture” will have more to say on that.

That aside, the question rather answers itself. Payment practices continue to be a major issue in the sector and I think people would be right in asking the Leadership Council what its position was. The Charter makes that clear.

Why does this charter take precedence over contractual arrangements based on best practice?

It does not. The Charter sets out a position that the Leadership Council is prepared to work towards. How businesses work to achieve that is for them to determine. The Charter is not a contractual document.

Is there a risk that the Charter will discriminate between first tier and second tier suppliers as to when they should get paid?

Absolutely not. The Charter is clear that it “applies to all parties to construction contracts with the aim of helping to create a more collaborative culture and ensure a strong, resilient and sustainable supply chain”.

Is there a risk between differentiating between public and private sector clients?

I think there is a bigger risk for poor payers if we are able to effectively differentiate between good and bad payers. Given the improvement in the economy, the need to more effectively support supply chains has been a strong theme of discussions I have had with many people from all parts of the industry. I do not really see this as public / private sector issue.

Why has the achievement of the original 30 days agreement now moved back to 2018?

The simple answer is that there was never such an agreement. The 2018 deadline was supported in recognition that there are many underlying issues which will first need to be addressed for the Charter to be successful. These include the behaviour of clients, industry business models and the payment culture in the industry.

So, to directly quote Nelson, we must change and we, as leaders of the industry, need to champion a positive step change to move forward and not to go backwards. The Payment Charter is not the destination. But I believe it is a critical step on that journey.

Peter Hansford is government chief construction adviser and a member of the Construction Leadership Council