Exclusive: The government’s 30-day payment terms are passed on to the majority of electrical subcontractors on less than 20 per cent of jobs, research shared with Construction News has revealed.
The Electrical Contractors’ Association group chief executive Steve Bratt warned that late payments were seriously threatening growth in the construction industry and forcing many subcontractors out of business.
“At worst, late payment can destroy a business, and at best it can severely hamper it,” he said.
Speaking to Construction News, Mr Bratt added that almost 10 contractors were going into administration every day.
“At worst, late payment can destroy a business, and at best it can severely hamper it”
Steve Bratt, ECA
The new research was revealed after a cross-parliamentary inquiry into late payment called for a Construction Code of Conduct with enforceable penalties if main contractors fail to pay their supply chain within 30 days on public sector jobs and within 60 days for private sector clients.
It is one of 11 recommendations made by the inquiry, which has been backed by the Special Engineering Contractors’ group, of which the ECA is a member.
ECA poll: Private sector contracts
11 per cent received payment within 30 days
59 per cent received payment within 30 to 60 days
30 per cent have had to wait more than 60 days for payment
Chair of the inquiry, Debbie Abrahams MP, told Construction News: “We are waiting to hear the government’s response to the recommendations and will be campaigning for their implementation.”
Research by the ECA found more than half of its members were paid within 30 days on less than 20 per cent of jobs for central government clients.
Meanwhile less than 10 per cent of firms were regularly paid on time by the main contractor.
Mr Bratt said: “The government is honouring payment terms but it is not working its way down the supply chain.”
He added that although the government was calling on the construction industry to lead the country out of economic downturn, it was too risky for many subcontractors to increase their workloads.
“For an SME, how can they [take on more work] when they have no confidence they are going to get paid?” he said.
ECA poll: Public sector contracts for central government end-clients
54 per cent paid within 30 days less than 20 per cent of the time
7 per cent paid within 30 days 40 to 60 per cent of the time
11 per cent paid within 30 days 60 to 80 per cent of the time
8 per cent paid within 30 days more than 80 per cent of the time
20 per cent had not worked for central government end-clients
Former construction subcontractor Steve Paul told the cross-parliamentary inquiry he had lost his business due to a delayed payment from a tier one contractor.
“Late payments meant [my business] was starved of cashflow and I had to put the business into administration. It was the worst time of my life,” he said.
“[It was] due to a big main contractor playing with us and using their power and might to starve me so they didn’t have to pay me.”
Ms Abrahams told Construction News she began her campaign against late payments after a plumber in her constituency was forced into administration due to late and non-payments.
“Late payments meant [my business] was starved of cashflow and I had to put the business into administration. It was the worst time of my life”
Steve Paul, former subcontractor
She added that in 2008 it was estimated that 4,000 SMEs closed directly due to late payments, but admitted that there was no up-to-date data attributing insolvency directly to late payments.
The poll of 230 ECA members also found that almost a third of subcontractors have had to wait more than 60 days for payment when carrying out work for private sector end-clients.
More than 40 per cent said their payment terms on private sector projects had increased over the past year, while the majority said there had been no change.
The government’s Construction 2025 industrial strategy acknowledged the problem of late payment in the industry and has made it a strategic priority for the Institute of Credit Management to develop a supply chain payment charter.
A Department of Business spokeswoman said: “Businesses not paying their suppliers on time is not acceptable.
“There is an expectation that project bank accounts will be used for construction contracts with government departments, and where they are not, tier one suppliers will be contractually obligated to ensure tier three suppliers are paid within 30 days.
“Where this is not the case we would encourage suppliers to use the Mystery Shopper scheme.
“This approach has been reinforced and extended in Construction 2025 – the Industrial Strategy for Construction – where industry and government have committed to develop a construction supply chain payment charter in partnership with the Institute of Credit Management.”
ECA poll: Private client payment terms
41 per cent said payment terms have increased over the past 12 months
53 per cent said there was no change in payment terms over the past 12 months
6 per cent said payment terms have decreased over the past 12 months