The failure of Carillion, the giant construction group, owing tens of thousands of suppliers a total of £2 billion, has led to calls for better protection for small and medium-sized companies in supply chains.
Neil Skinner, owner of Johnson Bros, an Oldham-based builder who lost £176,000 when Carillion collapsed, said: “Large companies know late payment can destroy us small businesses, but they rely on this tactic to be seen to be profitable themselves. Carillion went under owing us well over 15 per cent of our average turnover and this money is much needed to help us to survive.”
The Times reports that MP Debbie Abrahams has proposed a ten-minute rule bill that would mean suppliers’ cash would be ringfenced in order to speed up payment to small and medium-sized companies and reduce the impact of a large contractor going into administration.
“Late payment by large businesses is a massive issue across all business sectors. When payments take a long time working their way along a supply chain from the contracting authority, there is a risk that the cash could be cut off because of payer insolvency. We witnessed the catastrophic effect this has with the collapse of Carillion. The precarious position of other major government contractors like Interserve means urgent action is required.
“My bill aims to set in law the requirement that parties delivering government and public authority work, from the lead contractor right down through the supply chain, will receive payment from the same secure ‘pot’ of money”.
The Federation of Small Businesses and the Specialist Engineering Contractors’ Group are also backing the project bank accounts (PBA) proposals hoping that they would remove the incentive for large contractors to delay supplier payments to benefit their own cashflow. Mike Cherry, the national chairman, said that project bank accounts were needed to “enable prompt payment when work is completed and prevent big companies from hoarding money to improve their own balance sheets”
In 2015 Construction News reported that Highways England, one of the largest public sector clients for construction, is using project bank accounts. It was required by government in 2012 with delivering £3.7bn of work over three years using the payment mechanism and by April 2015 there were more than 35 PBAs in operation across Highways England schemes. The outcome:
- The average time to fund PBAs was 12 days;
- It took a further seven days on average for payments to be made to the supply chain;
- The average payment down to tier three level is 19 days after the assessment date.
James Hurley, who wrote the Times article, comments that though private members’ bills have little chance of success, they are influential – increasing pressure on government to legislate.