Thousands of contractors are at risk of cashflow problems because many local authorities are not ensuring their supply chain is paid promptly.
In October, the Electrical Contractors’ Association (ECA) asked local councils across England about how they are meeting key parts of the ’Public Contract Regulations 2015’, which came into force in February this year.
The Regulations require these bodies to contractually ensure prompt payment terms through their supply chain.
The main findings of the ECA investigation were as follows:
Less than 1% of councils admit to payment terms of over 30 days and 6 in 10 (59%) say that they pay within 30 days.
Around 4 in 10 local authorities (38% of respondents) say they ‘don’t know’ if they are meeting the legal requirements to pay contractors within 30 days.
Over 6 in 10 councils (62%) do not monitor (or don’t know if they do) whether their main contractors pay sub-contractors promptly.
Around 1 in 5 local councils (19%) say they will be taking ‘no steps to ensure within 30 days payment’ along the tier 1 supply chain occurs within 30 days.
Despite it being part of legislation, over 1 in 5 councils (21%) do not plan to contractually oblige suppliers to pay those below them in the supply chain within 30 days.
ECA director of business services Paul Reeve said: “Some of these ECA findings are remarkable because they show high levels of non-compliance with prompt payment law. While it’s still early days for the Public Contracts Regulations, which came into effect in March 2015, many contractors who work for local authorities right now are losing out, when they need to be paid on time.”
“We are concerned nearly 6 in 10 local authorities simply don’t know, or do not monitor, whether subcontractors are paid promptly” - ECA director of business services Paul Reeve
“Given that one of the most useful things that a council can do to help its local economy is to ensure that public sector money flows through the supply chain, this is disappointing, but worse than that, it’s legally non-compliant.”
However, Mr Reeve said ECA recognises that of public bodies are doing their best to follow the rules – showing it can be done.
The ECA will be sharing its data and next year will be revisiting those public bodies who are falling fall short of the regulations.
In October, the ECA surveyed its own members to establish whether public sector bodies, including local councils were meeting their obligations.
The member survey found the following:
Over 80% of public sector work undertaken by contractors was with local authorities.
Two in 10 contractors (22%) said all public sector clients paid them on time.
Tallying with the council data above, nearly 6 in 10 contractors (58%) say that they have ‘within 30 day terms’ with most or all of their public sector clients.
One in 5 firms (205) said public sector payment terms had actually improved this year, compared to 2014, with 6 in 10 (60%) reporting no change and 1 in 10 (10%) saying it had worsened.
Late payment legislation allows contractors to charge local authorities interest for failing to pay on time.
However, under the Public Contracts Regulations 2015, while there is a clear legal duty to ensure prompt payment, there are no apparent penalties for public sector bodies who fail to ensure payment through their supply chain.
This is yet another reason to support the H&V News Time for Change campaign to have retention funds in construction industry contracts placed into trust accounts, which will ensure they are not lost if companies further up the supply chain are placed in liquidation – read more at tinyurl.com/TfCrelaunch.
It has been rewarding to see increased support for tackling retention fund issues being pledged by MPs, and gives even more reason for readers to write to their local MP to urge them to get involved – feel free to draft your own letter or use our template.