Late payment practices put SMEs at a disadvantage, says NFB

Richard Beresford, chief executive of the National Federation of Builders (NFB) has released a statement saying that late payment is still a problem for UK construction firms, despite widespread acknowledgement that this is unacceptable. His full statement is detailed below.

Time to take a fresh look at procurement

In 2007, the NFB was one of the first organisations to take issue with how the government’s approach to procurement and frameworks put SMEs at a distinct disadvantage.

A disproportionately onerous administrative bidding process costs thousands, even tens of thousands of pounds, win or lose. Some of our members report spending up to 30 days each year on bidding for work. Any hint of financial instability instantly rules companies out, even if that instability is down to retention payments being withheld by companies further up the supply chain and not because of poor business management.

We do have mechanisms in place which have levelled the playing field. However, central government and local authorities, where SMEs gain most work, do not apply them. We don’t need additional legislation; we simply need to enforce what is in place.

Construction has a standard pre-qualification form, which the NFB helped develop with the BSI and the now Department for Business, Energy and Industrial Strategy. Take up is pitiful, despite the government requiring it on public construction contracts. This form helps level the playing field by removing the time-consuming repetitive nature of the process.

The Construction Act requires public bodies to pay undisputed invoices within 30 days. NFB members consistently report that public sector clients, including central government, do not pay on time. When you factor in some main contractors imposing 120-day payment terms, £10.5 billion withheld in retention payments, and around £22 billion in annual SME turnover is paid late, it becomes clear why so many SMEs are in a precarious situation.

There is an adjudication process in place, but many companies do not use it for fear of jeopardising future work. When major contract after major contract is awarded to a small group of the usual suspects, smaller companies are caught between a rock and a hard place.

According to Construction News in August 2017, the UK’s top 10 construction contractors posted combined revenues of £31.9 billion but a £52.9 million loss. This is not sustainable.

If we are to recruit apprentices and deliver world-class building and infrastructure projects, not only should the industry pay and train better, we need the government to be a better client who pays on time, and takes a long-term view on the health of those businesses its practices affect.

The NFB and its members provide a clear voice and act on those words. Our procurement work with some local authorities has yielded results for SMEs and local economies without a reduction in quality. One of our members, Colmore Tang Construction, is offering to pay its subcontractors that have been affected by the collapse of Carillion earlier than their contract terms in order to provide certainty. This is the kind of collaborative leadership the industry needs and represents the best construction has to offer.