Contractors urge UK Government to move quickly to tackle late payment abuse

Contractors urge UK Government to move quickly to tackle late payment abuse

Rudi Klein

The UK Government’s efforts to address the practice of late payments and the commitment to change the culture of unfair treatment of SMEs and illegal practices have been welcomed by the Specialist Engineering Contractors’ Group (SEC Group), but the trade body said there is still more to be done to ensure implementation and enforcement.

Rules set out this week by the Department for Business, Energy & Industrial Strategy (BEIS) to protect smaller business from late payments include the capacity to fine or introduce binding payment plans for the worst offenders.

Company boards will now be held accountable for payment performance to small businesses, with measures forcing Audit Committees to report payment practices in company annual reports.

A new fund to encourage businesses to use technology to simplify invoicing, payment and credit management has also been proposed.

Yesterday builders criticised the plan as too little too late and called for more immediate alternatives to help construction businesses struggling with late payment.

SEC Group, which represents the largest value sector in the UK construction, said it is pleased to see government adopting the view that the role of the Small Business Commissioner should be strengthen with powers akin to the Groceries Code Adjudicator and taking responsibility for company compliance with the Prompt Payment Code. This is something that SEC Group has strongly argued for and we will expect to see more detail on these proposals in the forthcoming consultation.

However, SEC Group had hoped that BEIS would proceed further with mandatory Prompt Payment Code and reduce the maximum payment terms to 30 days (currently at 60 days), in accordance to the Public Contracts Regulations 2015.

SEC Group also agrees with the government’s intention to bring greater transparency on how the supply chain finance is reported in company accounts, as this was something it had suggested as one of the lessons to be learnt from Carillion’s collapse. The trade body said it will be following with interest the guidance developed by BEIS and the Financial Reporting Council.

Against a background of a worsening financial crisis in the construction industry (with the balance sheets of the largest construction companies showing increasing fragility) effective measures are now required to improve payment security, it said.

SEC Group added it is now imperative that the government legislates to mandate the use of project bank accounts (PBAs) and ensures that retention monies are secured in a separate trust account or scheme.

Rudi Klein, SEC Group CEO, said: “We believe that Kelly Tolhurst (the Small Business Minister) is sincere in wanting a change in payment culture. We are pleased that she intends to act on the issue of cash retentions in absence of industry agreement on a solution [Kelly Tolhurst MP responses in House of Commons, 19/06/2019]. We also know that she is very sympathetic to the notion of PBAs.

“Statutory protection of retentions monies and mandating PBAs will transform the lives of the overwhelming majority of small firms in the industry.”

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