Government contracts should include pre-qualification questions on past payment performance, and should consider contractor payment history as part of the bidding process, according to a new report.
That is one of 11 recommendations made by a cross-party parliamentary inquiry, convened and chaired by Debbie Abrahams, MP into the issue of late payment to SMEs.
Recommendations also include that the government should establish a Construction Code of Conduct with an independent adjudicator for mediation.
Ms Abrahams said: “Until top chief executives, and their executive board members, make a decision to act ethically in business, and treat our small and medium sized businesses fairly, this problem will persist.”
Professor Rudi Klein, chief executive of the Specialist Engineering Contractors group, said: “Ms Abrahams is clearly committed to addressing this cancer of payment abuse that is currently pushing thousands of firms in the construction industry towards insolvency.
“Small construction firms in her constituency and throughout the UK will take heart from her Be Fair – Pay on Time campaign and the lead she has taken in driving forward this late payment inquiry into the issue.”
Steve Sutherland, chairman of Dortech Architectural Systems, who appeared before the inquiry on the SME panel, said: “The last twelve months have been the worst in my 45 working years.
“I have watched in disbelief as a tough market has driven major companies’ boards of directors to turn a blind eye to malpractice within their businesses and the resultant destruction of essential supply chain support, skills and entrepreneurialism on which the UK depends.”
The MPs recommend that the government should:
Recommendation 1: the government promote the adoption of ‘good practice’ guidance for large companies in managing supply chains, including publishing performance data relating to payment-on-time to suppliers in audited annual accounts.
2: encourage businesses to publish information for investors and shareholders defining their support of, and compliance with, ethical business practice, for example, signatories of FTSE4Good Index Series or Ethical Trading Initiative
3: support SMEs avoid late payments through free, high-quality financial management advice and/or training, for example, through trade associations, SME organisations, or local SME advisors.
4: work with SMEs and support the establishment or development of trade associations to negotiate, e.g., a Fair Treatment Charter, on behalf of member organisations.
5: The Institute of Credit Management should review and amend the PPC to reflect the issues identified.
6: The government should establish a Construction Code of Conduct, similar to the Grocery Code, with an independent adjudicator for mediation.
7: It should introduce a Retentions Monies Bill with money retained by a customer for a supplier to be held in a trust.
8: It should require all new Government contracts to include Pre Qualification Questions on past payment performance, and should consider the payment history as part of the bidding process.
9: The Government should make fair payment a contractual requirement for new Government contracts, with Tier 1 contractors paid within 14 days, Tier 2 within 19 days and Tier 3 within 23 days.
10: The government should support intermediary agencies, e.g., SME organisations or trade associations, to act on behalf of suppliers seeking recompense through Late Payments Directive.
11: The government are urged to implement a growth strategy that recognises the importance of SMEs and to commission research to assess the macroeconomic effects of late payments on SME suppliers