We're on the winning side - we're just not over the line yet

June 2, 2016

Ken Lewandowski insisted now is the time to introduce legislation to end the practice of late payment and cash retentions

 

 

In 2013 he was one of two authors who produced a withering assessment of how the construction sector was blighted by an 'endemic' late payment and cash retentions culture within public sector procurement.

 

Fast forward three years - and with 66 of his 67 recommendations in the process of being implemented by the Scottish Government, including that of mandatory Project Bank Accounts (PBAs) across the public sector - and Ken Lewandowski has a new target in his sights.

 

Invited as a special guest at SELECT's AGM at the Walled Garden earlier this month, Lewandowski - a chartered engineer, businessman and former chairman of Hibs - spoke extensively about how late payments and the practice of cash retentions by large construction firms over smaller subcontractors in the private sector, many of whom are SELECT Members, are effectively putting people out of business.

 

"We've achieved project bank accounts in the public sector, and that's great," Lewandowski told CABLEtalk following the AGM. "But the work is far from done. We need to stamp out what are frankly disgusting and unethical practices across the private sector when it comes to payment of their subcontractors. At best it's immoral, at worst it's bordering on fraud, and it is causing companies to be wound up."

 

Lewandowski is busy engaging with a new raft of MSPs who have come into the Scottish Parliament following the elections in May; he is also trying to arrange a time when he can address the SNP group of MPs at Westminster, to encourage them to raise the issue in the Commons.

 

"We have a large group of advocates in Westminster now, and we should be engaging with them. I have already been in touch with the secretariat at Victoria Quay in Edinburgh, and the Scottish Government generally. They have been very supportive, especially Fergus Ewing in the last administration. We now need to establish good relationships with our new Ministers including Keith Brown, Paul Wheelhouse and Derek Mackay, as Finance Secretary."

 

Lewandowksi said there is now recognition of the fact that 30-day payment terms need to be a legislative change, so that companies have a legal backstop to end the practice of late payments. 

 

"I don't think guidance is enough," he added. "Guidance will only get you so far. We now need a proper legal framework to be placed on statute which will bring an end to this culture. I believe we now need legislation introducing 30-day payment terms.

 

"We have been talking about this for 30 years now, but the time for talking is over. It must be stopped."

Lewandowski disclosed to CABLEtalk some of the companies whose cash retentions are actively putting small firms out of business. He said there will be a time to 'name and shame' those main contractors and project management firms, but that must be done jointly by the industry.

 

"I have a very well-placed source, a 'whistleblower', who has worked at one of these companies. I won't name names just now, but this very honest person has been in meetings where the director has insisted that an extra £6,000 is taken from the subcontractor on the final account. This is despite the work being signed off, there was no snagging needed, and there was no ethical reason why this extra money was taken from them. And this was a director. It's dishonest - these companies are using their privileged positions to sit on money. But it's not their money, they have already charged on their service, they are profiting from the work of others. It's a scourge, and it affects the whole of the business community right across the UK, not just the construction sector." Lewandowski cites another example where a small firm he knows had been owed £89,000 by a main contractor for over two years, and has had to battle to get the money due to them.

 

Lewandowski said he would like to see the German model followed, where legislation has been in place for over 25 years outlawing late payments, where a purchase price or payment of work performed may not exceed 60 days. If the contracting entity is a public authority, the period may not even exceed 30 days.

"It makes complete sense. The failure rate of SMEs in Germany is less than 10 per cent of that in the UK. We need to get our act together and follow that kind of model. I do believe we are getting there now; we're on the winning side - we're just not over the line yet."

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