The latest government plan to tackle unfair payment practices in construction must not be allowed to fail, according to the Building Engineering Services Association (BESA).
It said that proposals to force main contractors to be more transparent about the time they take to make payments and how much retention money they are withholding from sub-contractors could make a huge difference to the business prospects of smaller specialist suppliers, including building services contractors.
Crucially, BESA said it would be pushing for companies to be required to publish the amount they have paid not just the number of invoices as that was the most meaningful measure of how closely they were sticking to payment pledges.
The government is consulting the industry until April 28 on a new retentions and late payment reporting scheme that would improve the amount of information available to contractors to help them negotiate better payment terms and avoid working for companies with poor payment records.
The proposal would update the existing Reporting on Payment Practices and Performance Regulations and follows a government review.
“The late payment problem cannot be entirely addressed by means of legislation,” said the Minister for Enterprise, Markets and Small Business Kevin Hollinrake. “It is ultimately a matter of encouraging a culture change in payment practices and how businesses deal with each other.
“But we want to continue to help to build that culture of prompt payment between companies and challenge UK businesses to improve their practices and stand by their smaller business partners.”
He said the government review had produced evidence of “some improvement in payment practices” since the introduction of the legislation, but there was scope “to do more to ensure compliance and to increase awareness in this area”.
Five years on from the collapse of Carillion, BESA said it was crucial that main contractors were no longer allowed “to mark their own homework” and welcomed the proposal to make individual directors responsible for a company meeting its fair payment pledges.
Under the proposed changes, companies would be required to report the average number of days taken to make retention payments, after practical completion and the end of the contractual defects liability period. They would also have to report how many retention payments were paid in 30 days or fewer, between 31 and 60 days, and in 61 days or more.
The government would also require firms to publish the average value of the retentions they held as a percentage of the overall contract and which retentions were not paid in the agreed period and why.
“BESA will be providing a detailed response to the consultation and emphasising that measuring payment by value is the best way to gauge how well a company is performing,” said the Association’s legal and commercial director Debbie Petford.
She said proper enforcement would also be vital as there had been too many ‘voluntary’ pledges on late and unfair payment over the years, which have not helped the cause of sub-contractors struggling to claim fair payment “for work they have completed in good faith”.
“We welcome the government’s new proposal as it could make a real difference at a time when many SMEs are facing insolvency due to strangled cash flow through no fault of their own,” she added.
“Let’s get this new plan agreed and then make it stick.”
BESA members have access to detailed advice and support from the Association’s expert legal team on all payment, contract conditions and insolvency matters here.