Poor payment performance ‘still widespread’, finds SEC Group Scotland survey

The Scottish Government has failed to prevent SMEs in the construction supply chain from suffering from poor payment performance, according to a new industry survey.

Poor payment performance ‘still widespread’, finds SEC Group Scotland survey

While work by the government has been described as a “step in the right direction”, the picture emerging from the latest poll of construction engineering firms carried out by the Specialist Engineering Contractors’ Group Scotland (SEC Group Scotland) is that the initiatives have not yet had a major impact.

In the survey, which revealed a small variation on payment performance between public sector and private sector, firms also backed the idea of a Construction Regulator to help improve the situation.

During the course of last year, SEC Group Scotland carried out an extensive survey on payment practices as they affected engineering firms in Scottish construction. The overwhelming majority of respondents were SMEs. Firms were asked to indicate whether there were differences in payment performance in both public and private sector construction.

According to the survey results, 90% of firms supported 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.

More than 60% of public bodies amend the payment provisions in the standard forms of construction contract (this often involves extending the payment cycles), while the figure for the private sector was 69%.

Only 28% of firms reported that they were paid by public bodies within 30 days (for the private sector the figure was 24%). Where firms were acting as sub-contractors on public sector works, over 85% reported that they were not being paid within 30 days (76% in the private sector).

Almost 47% of firms working for public bodies reported that a tenth of their payments were late (10% more than in the private sector). A significant number of firms (19%) reported that at least a third of their payments from public bodies were late.

Almost half of their payments are made late according to 45% of sub-contractors working in the public sector.

Eddie Myles, SEC Group Scotland chairman, called on policy makers to tackle payment abuse in construction as a matter of urgency.

He said: “There is overwhelming support amongst firms for a construction regulator to challenge poor payment practices. I, therefore, urge Scottish Government to back this proposal by introducing legislation to create the office of regulator with extensive powers to penalise those guilty of bad practice.”

Ken Lewandowski, formerly co-chairman of the 2013 review of public sector construction, said he was frustrated by the slow pace of progress in curbing payment abuse particularly by the larger construction companies.

He added: “I have witnessed at first hand the appalling treatment of small firms in construction when it comes to payment. We depend on small businesses to invest in the future of the industry in Scotland.

“They are primarily responsible for contributing to their communities through offering apprenticeships, increasing local employment and upskilling their workforces. But we cannot expect them to continue such investment at current levels unless we are prepared to address this problem of payment abuse head-on.”

SEC Group Scotland has called on the Scottish Government to amend the Procurement Reform (Scotland) Act 2014 to require that all public bodies use project bank accounts (PBAs) so that payments to all suppliers are secure. Where PBAs do not apply, public bodies should have a statutory duty to ensure 30 day payments are made to all firms in the supply chain, it said.

The trade body wants to see legislation introduced to protect cash retentions and to create the role of a construction regulator. It also wants the cost of adjudication to be reduced so that SMEs can afford to challenge “spurious” reasons for withholding payments.

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