With continued low productivity rates and pressure on margins, late payment still blights the construction sector and may soon exclude some companies from major contracts.
The most recent data from Creditsafe for the third quarter of 2018 showed that construction is the second worst payer by sector in the UK (after hospitality), averaging payment 41 days later than contracted timescales. The same quarter showed an increase in company failures, which is unlikely to be coincidental.
The Government’s Prompt Payment Code (PPC) was supposed to address this issue with companies signing up to a pledge to pay 95% of invoices within 60 days. But evidence suggests that many of the biggest names in the construction industry are not living up to their commitment.
We won’t name them here, but a recent review of the data provided by members to the Code resulted in seven construction companies which are among the largest in the country being suspended for not paying their suppliers in line with the promised terms.
Suspension or expulsion from the code is likely to cost companies dearly in the future as there is an expectation that the Government will implement plans to restrict those who breach the code from bidding from public contracts. The likelihood is that for all public contracts over £5 million per annum, bidders’ payment records will be examined closely and anyone who does not meet the PPC standard will be excluded.
The Government’s ‘Construction 2025’ long term vision for the future of the industry cited equitable financial arrangements and certainty of payment as critical success factors for the industry. The report recommends creating conditions for construction supply chains to thrive by addressing access to finance and payment practices.
Late payment is a historical problem in the constructions sector but getting paid on time is critical for many companies in the supply chain. SME’s, which make up 99% of the construction supply chain, are hardest hit by late payment. They are unlikely to invest in skills training and new technologies if their cash flow is under constant pressure from unpaid invoices.
The problem needs to be addressed at the source of the flow of payments through the supply chain. If large contractors continue to ignore their responsibility, they will exclude themselves from the public contracts that are their lifeblood shrinking the supply chain and restricting opportunities for growth and profitability for everyone.