This week Construction News published a report on the payment practices of the top 100 construction firms in the UK. This research found that contractors take an average of 43 days to pay their suppliers. The average proportion of invoices not paid to the terms originally set out is 28 per cent.
The research reflects widespread sentiment in the construction sector that change is needed in terms of smoothing payment at all levels in the sector. Better payment by clients and through the supply chain will release more money to invest in efficiency and productivity, boosting the sector and delivering better outcomes for customers.
CECA has been active in this area, working with Government to identify ways to boost this vital cashflow through the sector. Later this year we hope to unveil bold plans to improve sector wide cashflow. In the meantime we have supported Department for Business, Energy and Industrial Strategy proposals to eliminate cash retentions for the sector.
Cash retention is a percentage certified as due to the contractor that is retained by the client, with the purpose of ensuring a contractor or sub-contractor properly completes the activities required under a contract, and ensuring any work delivered is defect-free. There is growing recognition that such cash retentions fail to achieve their objective, while locking up funds that could be put to better use.
The current business model of infrastructure construction in the UK runs with unsustainable operating margins, and CECA believes that a total overhaul of payment within the sector will be required if industry is to deliver the substantial pipeline of projects that are planned in the coming years.
Commenting, CECA Director of External Affairs Marie-Claude Hemming said: “Since the collapse of Carillion and in the ongoing period of uncertainty relating to our future trading conditions once Britain leaves the EU, many contractors are continuing to be squeezed by onerous payment conditions, with smaller businesses particularly badly affected by razor-thin and unsustainable margins.
“That’s why CECA has long supported the total abolition of cash retentions. If our industry is to deliver the Government’s pipeline of planned investment in the coming years, if must do so on a model that is sustainable, and not prejudicial to the ability of smaller companies, many of which are SMEs that focus on specialised aspects of project delivery.
“At the same time, alternative solutions must be found to provide security in the event of any defects in the projects delivered.”