Comment: What an FoI request tells us about 30-day payment

Paul reeve

There has been a series of voluntary fair payment initiatives in the past few years, including the Prompt Payment Code, but these have failed to bring about any major change in commercial sector payment, writes Paul Reeve.

In the public sector, however, pressure from the Electrical Contractors’ Association (ECA) and others led to the more compelling Public Contracts Regulations 2015, which require public sector bodies to ensure prompt payment through their supply chains (see above).

Towards the end of last year, the ECA issued a Freedom of Information (FoI) request to local authorities, which are required by the 2015 Regulations to ensure “under 30-day” payment throughout the supply chain, to find out whether councils were doing enough to ensure lower tier contractors were paid in good time.

The results showed that while many councils did ensure that subcontractors were paid promptly, many were simply “not sure” if they did and, perhaps more remarkably, a substantial number said they did not ensure prompt payment down their supply chain.

Overall, around six in 10 local authorities were found to be not meeting their payment duties under the Public Contract Regulations 2015.

The FoI request results showed:

• Fewer than 1% of councils admitted to payment terms of more than 30 days, and six in 10 (59%) said that they paid within 30 days.
• Around four in 10 local authorities (38% of respondents) said they “didn’t know” if they were meeting the legal requirements to pay contractors within 30 days.
• In addition, more than six in 10 councils (62%) did not monitor (or didn’t know if they did) whether their main contractors paid subcontractors promptly.
• Around one in five local councils (19%) actually said they would be taking “no steps” to ensure payment along the Tier 1 supply chain occurred within 30 days.

Disappointingly, these responses show high levels of knowing or unknowing non-compliance with current prompt payment law. Given that one of the most useful things that a council can do to help its local economy is to ensure public sector money flows through the supply chain, extensive non-compliance with payment law needs to be addressed urgently.

We recognise that many public bodies are doing their best to follow the regulations, and we are encouraging these bodies to share how they do it, to help other authorities to comply as soon as possible, and help ensure that all contractors are paid on time. 

But additional, and potentially significant, payment-related legislation is coming into force in April under the Small Business, Enterprise and Employment Act 2015, when large companies (employing over 250 staff) will have to report regularly about their payment terms and how well they follow them.

It will also highlight the best and worst performers. All this should bring much greater accountability for payment activity, and provide the transparency that can lead to the sort of cultural change in payment that the industry urgently needs.

However, until prompt and fair payment becomes the industry standard in construction, the industry will continue to fall far short of its potential. Without financial stability, many firms will never invest, or be able to contribute to, greater UK innovation, productivity and growth.

Conversely, prompt and fair payment legislation could well underpin greatly improved performance in not just the building services sector, but across the wider industry.

Paul Reeve is director of business services at the Electrical Contractors’ Association