Pressure grows on government to address construction late payment

An early day motion in parliament is set to increase the pressure on the government to address the culture of late payment in construction following the collapse of Carillion which has left many companies out of pocket for work they have done.

Bury North MP James Frith has tabled an EDM calling on the government to honour all outstanding payments on public contracts for work completed and to enforce public sector 30-day payment regulations “with consequences including the disqualification of those that do not comply from winning public contracts”.

Frith’s EDM also says that the government should protect local economies and jobs by ensuring that any Carillion redistributed contracts remain with SMEs. Frith also wants the government to introduce new legislative proposals to place construction retentions into secure and independently held deposit protection schemes and tougher measures brought in to limit borrowing against public contracts.

The motion says that small businesses should not be punished for the misdeeds of a failed large company and post-Carillion highlights the payment abuse suffered by sub-contractors engaged in the delivery of public contracts for a prime contractor. The EDM notes that 30-day payment regulations for public sector contracts are routinely ignored by prime contractors and left unenforced, which Frith says “have facilitated practices such as Carillion's 126-day payment terms, leaving thousands of SMEs exposed”.

The EDM also notes that £700m has been lost to the supply chain over the last three years as retention fees are held back from subcontractors by prime contractors and that Carillion alone will see £800m of such fees disappear, along with an amassed £1.5bn in unsecured debt.

Commenting on the proposed EDM, Association for Consultancy and Engineering chief executive, Nelson Ogunshakin, said: “ACE welcomes James Frith’s early day motion on payment provisions. The industry has long argued for fair payment terms of 30 days or lower as well as the eradication of retention in contracts. Cash-flow management is critical to any successful and sustainable business and Carillion’s collapse highlights the damage being suffered by many companies in our sector. 

“The time has come for real action on late payment and the government must lead the way by eradicating the late payment culture, firstly on public sector contracts where it is in a leadership role, but also across the rest of the industry, through implementing measures via its construction sector deal and through legislation where necessary, to outlaw this iniquitous practice which is causing long term damage to the UK construction sector.”

Click here to view the full text of the EDM.

Andy Walker, editor of Infrastructure Intelligence, writes . . . 

"It is good to see this crucial issue being raised by a local MP in this way. It will help to highlight the debate over payment days and raise the profile of the plight of the hundreds of companies that have been hit hard following Carillion’s collapse. All those working in the construction sector should contact their local MPs and ask them to sign James Frith's EDM so that maximium pressure can be brought to bear on the government."