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Wednesday, June 20, 2018
BESA welcomes today’s news from Network Rail, the owner and infrastructure manager of most of the UK’s railway network, which has announced new policies to greatly improve payment practices.
Network Rail will include in their standard contract terms that suppliers must pay their subcontractors within 28 days and not withhold a retention. Being paid promptly, within 28 days of completing work, will mean that contractors are owed a smaller amount of money at any one time, again strengthening their cash flow.
Late payments and abuse of the cash retentions system has long been a detriment to the industry, and BESA has been campaigning heavily for urgent reform to the practice.
BESA Public Affairs and Policy Manager Alexi Ozioro said that “With the campaign around the Aldous Bill gathering great momentum, and the Bill now on in the order book for October, Network Rail have shown exemplary leadership and foresight. This demonstrates not only that reform can happen, but it can happen now, if the desire to improve poor payment practice exists. If a major client like Network Rail can do it, we all can.”
In addition to this, Network Rail have also announced measures to assure the cash flow and support of their supply chain by introducing the use of project bank accounts on some of its major projects.
Debbie Petford, BESA Head of Legal said “This is a bold and very positive step in the right direction. If Tier 1 contractors are contractually not allowed to withhold a retention hopefully this will trickle down the supply chain. We will eagerly wait and see if this is the case, but Network Rail are setting a great example to the wider industry.”
Richard Beresford, Chief Executive of the National Federation of Builders said: “Certainty of payment creates a truly healthy supply chain. Network Rail has answered the question on how quickly can a major supplier change its payment policy. The only question that remains is ‘who will be the next major contractor to act on fair payment?”
The reforms come ahead of the new five year funding period (Control Period 6) which will run from 2019 until 2024 and see around £48bn worth of contracts and investment in the rail sector. These welcome changes will see the rail industry become the first sector within the wider UK construction industry to enforce such payment measures, overhauling the way large contractors do business with their supply chain.
Commercial Director of Network Rail, Stephen Blakey said in today’s Construction Enquirer “Culturally, this sends a huge signal as to the value we place on a sustainable supply chain and the way we want to do business. We recognise the challenges faced by smaller suppliers and are in a position to influence the way work on our railway is delivered and paid for.”
He added “The changes are something our major contractors are very supportive of and we continue to work closely with them to help manage this effectively. For instance, we have created best practice T&Cs to adopt with their own supply chain.”
Having implemented a best practice ‘Fair Payment Charter’ and applying these principles to their own payments to suppliers back in 2011, Network Rail describes the decision to formalise this regime for Control Period 6 as ‘the next natural step’ and something their major contractors support.
These reforms will deliver greater certainty and reassurance to SMEs delivering work on Network Rail projects. This is an industry leading example of how to embrace the supply chain and demonstrates how we can all work together to bring efficiency, value and a great service to our collective stakeholders and customers.
Members can see the original Network Rail announcement here.
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