A meeting recently with Paul Uppal, the Small Business Commissioner*, highlighted our continuing campaign to address issues over late and reduced payments which have become commonplace across the construction industry.
The meeting followed on from research that SELECT and other trade bodies had recently carried out and which illustrated the effect to which businesses are suffering from poor payment performance.
In the study, businesses were asked to indicate whether there were any noticeable differences in the payment performance between the public and private sector clients.
While expecting that public bodies would operate in an exemplar fashion, the research showed that more than 60% of them amended payment provisions in the standard forms of construction contract, which often involved extending the payment cycles. The figure for the private sector was 69%. To compound matters, just 28% of firms surveyed reported that they were paid by public bodies within 30 days, while in the private sector the figure was only 24%.
This failure to pay contractors on time creates serious knock-on problems in the economy, as well as becoming a major contributory factor to the mental strain imposed upon owners and directors of Scotland’s SME businesses, the lifeblood of the Scottish economy.
At the time the research was issued, Tessa Ogle, CEO of the Electrical Industry Charity (EIC), said: “The impact of late payments is having an increasingly damaging impact to mental health and wellbeing in the sector.
“Last year, 87% of people using the EIC’s mental health services reported having significant financial issues.
“We can no longer look at this as just a monetary issue – the health implications to the sector are significant.”
It is clear that late or reduced payment can no longer be viewed in isolation as a consequence of running a business. It has much wider consequences, including impacting on our nation’s health and welfare.
So we know the problem, but what are the solutions?
Well there is already legislation in place, which – if used properly – could help.
The Procurement Reform (Scotland) Act 2014 requires public bodies to monitor payments down the supply chain to make sure that payment is made within 30 days. If this was properly policed and enforced then payments would speed up. In addition, the Scottish Government reduced the level at which project bank accounts (PBAs) should be used on public sector jobs from £4.1 million to £2 million. As well as speeding up payments, use of a PBA ensures that payments to all suppliers are secure. Insisting that all public bodies use PBAs would also help.
Finally, we support the introduction of a construction regulator with powers to impose penalties on poor payers or, in the case of suppliers, to exclude them from bidding for public sector works.
We need a stick as well as a carrot.
If we are serious in the industry about tackling this issue, we need real leadership and we need to be brave and decisive. I have high hopes that the Small Business Commissioner will prove to be all of these.
Managing Director, SELECT
* The Office of the Small Business Commissioner (SBC) was launched in December 2017 to ensure fair payment practices for Britain’s small businesses, and support them in resolving their payment disputes with larger businesses and bring about culture change.