Why is poor payment still an issue?

By Catriona Lingwood, Chief Executive of Constructing Excellence in the North East

For me, the big news in the industry last week were plans to charge subcontractors 1.5% of package turnovers to become closer strategic partners. The controversial (to say the least) new plans were announced to overhaul and promote better supply chain relationships across the group. Is this encouraging greater collaboration and alignment with subcontractors or is it just pushing the ‘pay to get paid’ culture that I desperately hoped we’d stay away from?

The Prompt Payment Code was launched 11 years ago in an effort to help SMEs get paid faster. While support from the government has only increased over the years, it still hasn’t helped PPC be more successful. The government have always threatened to name and shame those that fail to pay promptly, but never followed through. Despite many being members of the PPC, which expects businesses to pay 95% of their invoices within 60 days, there are still a number of companies who take more time than this to pay their own invoices. How can you expect one thing but do another? It’s especially important that money is paid on time in our industry; on a construction site there could be 20 different trades that participated, and money could be held back because of anyone else in the project chain.  Until recently, there were no financial penalties for not sticking to the PPC, the only punishment was the risk of having the PPC ‘badge of honour’ taken away. The PPC was intended to be a driver for change but it has struggled to have an impact due to a lack of funding and unrealistic expectations. Given that Carillion were still signed up until the day it collapsed, it clearly wasn’t working.

Last week, the Cabinet Office minister wrote to government suppliers reminding them that a new late payment crackdown is on the way. Unlike other efforts to change the culture, this one actually comes with a business incentive that might work. From September, firms that don’t pay at least 95% of undisputed invoices within 60 days face being barred from public sector contracts worth more than £5m, this will ensure the government only does business with companies who pay their suppliers on time, many of which are small businesses.

Finance is a huge problem for our industry and one I don’t think we’ve taken seriously enough in the past. In everyday life you pay for things immediately, whether that be goods or services, you also wouldn’t expect your boss to ask you for money to ensure you got paid on time or earlier – so why should our industry be any different? We saw the same thing happen with Carillion and look how that turned out!

For more information on Constructing Excellence in the North East, please contact chief executive, Catriona Lingwood, on 0191 500 7880 or email catriona@cene.org.uk.