A ‘hard-hitting report’ from the Department for Business, Energy and Industrial Strategy (BEIS) Select Committee has backed the building engineering industry’s calls for tougher action on late payment.
The committee, which carried out a wide-ranging inquiry into small business and productivity, has urged the government to introduce statutory requirements to pay within 30 days. It also said the Small Business Commissioner, Paul Uppal, should have an extended remit to cover construction, and be given the power to fine late-payers.
The report also recommends that cash retentions be held in independent bank accounts, and echoes last week’s announcement from the Cabinet Office that main contractors would be excluded from public sector contracts if they failed to pay their supply chains on time.
“If government contractors are late with supplier payments, they could stop winning public contracts altogether – until they clean up their act,” said Cabinet Office Minister, Oliver Dowden, adding that paying invoices promptly was vital to provide healthy cash flow ‘particularly for smaller businesses who are the backbone of the UK economy’.
The Building Engineering Services Association (BESA) and the electrotechnical and engineering services body, ECA, who have been campaigning on the issue of fair payment for SMEs and gave evidence to the BEIS inquiry, warmly welcomed both developments.
BESA’s Policy manager, Alexi Ozioro, said there was ‘real momentum building up behind the wider campaign for SME contractors to get the fairer payment terms they deserve’.
He added: “This highly influential report from the BEIS Select Committee and the Cabinet Office’s intervention are highly significant, especially with the anniversary of Carillion just a month away. This reflects growing political pressure to address behaviour that is not just morally wrong, but also bad for the UK economy, by putting perfectly good businesses at risk of insolvency.
“Connecting fair payment to procurement is a powerful statement from government, and a very welcome development,” added Mr Ozioro. The ECA’s deputy director of business policy and practice, Rob Driscoll, added his support, and explained that the Cabinet Office SME panel had worked tirelessly with civil servants to improve the landscape for SMEs doing business with the public sector. “These developments represent a significant milestone in the government realising its role as a responsible client in the post-Carillion era. They should be applauded,” said Mr Driscoll.
Both bodies are leading the campaign behind the ‘Aldous Bill’, which is due to have a second reading in the House of Commons in January, and now enjoys the support of 270 MPs. This private member’s bill aims to ensure that retentions are held in trust to protect sub-contractors from upstream insolvencies like Carillion, and the BEIS Select Committee has now backed this approach.
BESA says that over £10.5 bn of SME working capital is ‘locked in’ retentions annually, with cash flow issues leaving them unable to invest in skills, training, and ways to improve productivity. It added: “Carillion held around £800 m in retentions at the time of its insolvency. Government research shows that £700 m of retentions was lost via upstream insolvency in the last three years, and that the industry loses almost £1 m each working day (£20 m per month) in vital cash flow due to the practice of withholding sub-contractors’ money.” At the recent BESA National Conference, Paul Uppal said late payment in construction was ‘simply a bad way to do business’.