The Construction Leadership Council (CLC) has urged the whole sector to help each other by boosting the flow of cash through the sector.
The CLC has written to the sector warning that the difficulties construction faces as a result of the covid-19 crisis will only be made worse if disputes and penalties are invoked and if firms sit on cash meant for their suppliers.
It warned that it was aware of a number of businesses that have chosen to unilaterally delay payment or extend credit terms. “We do not believe this is acceptable or appropriate – particularly at this time of great stress,” the letter said.
Andy Mitchell, co-chair of the CLC said: “We are increasingly concerned about the management of payment in the supply chain. All construction businesses should continue to pay in accordance with agreed contractual terms and firms should not be threatening to invoke penalty or other contractual clauses. Our joint priority must be to sustain the industry. All firms should think hard about how their reputation could be damaged by not doing the right thing during these difficult times.”
Mitchell added that the sector could only justify the “unprecedented range of support measures” from government if cash continued to flow and liquidity is maintained. “Our common enemy is covid-19, and we need to unite, and work collaboratively to resolve shared problems,” he said.
Caroline Gumble, chief executive of the CIOB, added her support to the call. She said: “The CIOB supports the CLC’s letter and the call for construction companies to pay the partners in their supply chains, promptly and in accordance with their agreed contractual terms. This is a matter of ethical behaviour and an action that can be undertaken, in the short-term, to support our industry and send a clear signal to others that, at a time when we have called for action from government, we are practicing what we preach and doing what we can to support our own partners and suppliers during this unprecedented situation.
“It’s an opportunity to show leadership and we already know from our recent survey data that many firms are worried about the financial impact of the coronavirus – this is an opportunity to support supply chains and cash flow for companies that may be in need of support more now than ever.”
Client retentions plea
Meanwhile, the CLC has issued a plea to the government to instruct construction clients to release £4.5bn currently being withheld from contractors in the form or retention payments.
Ann Bentley, CLC member and global board director of the consultant Rider Levett Bucknall, said: “The CLC has put pressure on government departments to show the way on payment. While the initial reaction was supportive there has been some rowing back with bureaucracy coming into the conversation, which is disappointing.
“We feel government departments should be setting a good example. After all, the amount of money held in retentions is several magnitudes smaller than what the government is spending on furloughed workers.”
Since the CLC letter arrived at 10 Downing Street, the Crown Commercial Service has updated its Procurement Policy Note 2/20 to suggest ways that public sector clients could improve cash flow through their supply chains. It says the release of retention money could be considered but warned that it might expose clients to “inappropriate risks”.
“The current crisis has provided a sharp reminder that cash is king in this industry,” said Building Engineering Services Association (BESA) chief executive David Frise. “Any measures that can get cash flowing more rapidly through supply chains will be crucial to ensure our sector can keep delivering on its promise to support essential services with vital building services.”
The CLC letter pointed out that the cash retentions routinely held against contractors can represent up to 5% of each regular payment. It acknowledged there would be some “strong opinions over this”, but were the government to direct all public sector bodies to release all retention monies held “this would inject cash at all levels of the construction supply chain”.
