The problem with the way we think about late payments; why making a villain out of Main Contractors is missing the bigger problems at hand.

The new Supply Chain Charter is setting out to change the late payment practices in the industry, but with specific construction law already in place, and often ignored, how effective can it be? Also is it missing the point? Do we need to delve a little deeper to understand why late payment practices exist in the first place – because if it is a business model that the clients are forcing Main Contractors to resort to in order to drive a profit, how would the Supply Chain Charter address this?

When we first set out to try and change the way people were treated in industry we did it by sitting down and looking at how previous initiatives, both inside the sector and outside of it, had attempted to do the same thing. We found there to be a common theme in that quite often the focus was only on the generic  things that individual companies or organisations would need to do. The actual realities of how this affects the sector or if it would be taken up and enforced, were often missing.

So let’s imagine the responses to the question,”What should be done about late payment?” –

 

  What Government thinks What Main Contractors think What Sub – Contractors think What Constructing Equality thinks
What needs changing? Late Payment practices by main contractors Clients requiring more for less money, quicker and at greater risk I need to be paid on time! The industry’s approach to procurement
Why? Sub-Contractors are being driven out of business Because it means we have to minimise our risk through our sub-contracted supply chain to make a profit for our shareholders Because I have to pay my labour and material costs – oh, and the debt that I took on because I had no cash flow Current practices leave organisations fighting for profit and reduce their own risk .
What are the benefits? More healthy companies contributing to the economy More informed clients could lead to more integrated supply chains I will be able to start employing people again and move away from a self-employed workforce. A more integrated approach will benefit all stakeholders, if trust is established
What might prevent it from happening? Main Contractors not paying on time Clients wanting more for less money, quicker and at greater risk Main Contractors finding ways not to pay (Non-return of retention, querying valuations, dubious contract clauses, etc.) Lack of trust and willingness to work together
What needs to be done? Make Main Contractors pay on time Have better informed clients and ensure that their payment terms, programmes and risk allocation is realistic Main Contractors need a real reason to comply with the law – like procurement. A framework linked to procurement that sets out requirements for client, contractor and sub-contractor behaviour and processes, then assesses their performance
How will it be done? A charter that Main Contractors sign up to In a way that doesn’t upset the client; after all we still need the work By Main Contractors being unable to win public sector work if they don’t pay on time Be Fair Framework
How will it be measured? Sub-contractors can report late payers What about that Social Value Act? Not sure, just because a payment term is in a contract it doesn’t mean that’s when I will be paid. Be Fair FrameworkAssessors
Who will measure it? Self-regulating Who measures that Social Value Act? No one I imagine. CITB
What is the likely outcome? We will have done something about late payments Can’t see it happening, but I’m behind it! The situation will remain the same despite the fact that we will have a charter to show it has changed Help to establish a level playing field for industry

 

We strongly believe that by focusing this Supply Chain Charter at Main Contractors we will only paper over the cracks; clients are an important part of the reasons that late payment terms exist and we need to start seeing them as part of this picture. By clients, contractors and government working together the industry can move forward but it needs more than a charter, we would suggest that it needs the CITB Be Fair Framework.