Still waiting for fair payment times

During prolonged periods of uncertainty and change, like that experienced by construction over the past six years, it’s a natural reaction to look for anything that remains constant as a source of reassurance. Unfortunately for our industry one of the most constant factors has always been the length of time businesses take to get paid for work they have done - hardly a comfort when times are hard.

As the government announced a fresh fair payment initiative this week, analysis of data from the National Specialist Contractors Council shows that there has been no improvement in the length of time it takes to pay suppliers as the industry starts to move out of recession (see Infographic, right).

This may come as little surprise, given the recovery is still in its infancy, particularly as far as contractors are concerned. But the notion that payment may improve as the market continues to pick up is dashed when you compare the data with that pre-recession, in 2007. Despite the abundance of work, payment times were, if anything, slightly worse than they are today.

Against this backdrop, the need for an overhaul of payment practice is indisputable. It is unacceptable, in an industry that is trying to convince its clients that it can offer them an efficient, modern service, that 18% of specialists are still receiving payments more than 60 days after they are due.

It is unacceptable, in an industry that is trying to convince its clients that it can offer them an efficient, modern service, that 18% of specialists are still receiving payments more than 60 days after they are due.

But those past six years which have seen very little change in payment practices have also, ironically, seen two of the biggest government-led drives to improve payment in recent memory. First, in 2008, there was the introduction of a fair payment charter; then, in 2010, a high-level missive from cabinet office to all central government procurers to take a lead on paying suppliers well under the 30-day period seen as “fair”.

So what chance does this week’s initiative, led by the Construction Leadership Council (CLC), have of succeeding in making an impact where its predecessors have so clearly failed?

To take the positives first, the make-up of the CLC – which includes both government and main contractor representatives – stands to give its charter more weight than its predecessors. Although early signatories to the voluntary deal are yet to be confirmed, it seems a reasonable assumption that at least those companies with representation on the CLC - including Laing O’Rourke, Kier and Skanska - will move to enforce its proposals. The principle idea of the charter is a move to 30-day payments by 2018.

But influential though this group may be, pockets of good practice will not be enough to make the sea change that would count as success. And to assume that where they lead, the rest of the industry will follow, would be dangerously naive given the lack of impact of the two previous initiatives, which were not without their supporters. So the question will come down to the inclusion of enforcement measures when the detail of the charter is unveiled later this month – and then how rigorously those measures are followed.

The original fair payment charter was voluntary, the cabinet office briefing attempted to make payment terms contractual without a clear consequence if that did not happen. If this latest initiative is to succeed, it needs to have a clear set of sanctions for clients and signatory contractors on public sector contracts that do not adhere, even though signing up to the charter itself is voluntary.

As with the payment terms on so many contracts, the most important information will be in the small print.

Sarah Richardson, editor