Vox pop: Is the new Supply Chain Payment Charter going to change the industry’s payment culture?

Chris Miles, operations director, Longcross

The Charter’s deadline to achieve 30 day payment terms by 2018 is to a certain extent a cop out, and indicates that the Construction Leadership Council isn’t pushing very hard on this. However, there’s no question that something needs to change, this is such a huge problem for the industry.

The various high profile members of the CLC could help give this charter more impact than previous Government-backed fair payment charters. But it won’t make much difference for current supply chains of those organisations, these clients already have stringent 30-day payment terms in place. For example, we work for Sainsbury’s, which tracks every subcontractor payment to ensure firms are paid on time.

The real issue is with the entrepreneurial developers and smaller clients who aren’t spending as much money, or who are doing one-off projects and find it harder to control and monitor builder payment terms.

The penalty for non-compliant firms under the new charter should be for public clients or other private firms to refuse to do business with them in future, which should drive compliance, and it certainly provides an incentive for us in our work for Sainsbury’s and British Land.

Bernard Keogh, managing director, Arque Construction

I welcome the Charter as I know subcontractors, some very large ones, which are having to wait 60 to 90 days for their money. But in many cases late payment comes down to the client not certifying the money promptly. If they pay the main contractor on time, ie within 14 days under JCT standard terms, then the main contractor can pay the subcontractor promptly in under 30 days. As a main contractor we at Arque always aim to pay within 30 days, but if our client is giving us 60-day terms or not paying us on time that is what causes issues.

Another problem is that this Charter is voluntary and many main contractors will have little interest in signing up to it because they depend on delaying subcontractor payments to survive. Today, profit margins for builders are only around 2% on average, so cash flow is important and they have to withhold payments in an effort to bankroll their businesses. Around 15 years ago the MP Nick Raynsford looked at this problem and discovered that firms would collapse if fair payment was made mandatory.

Chrissi McCarthy, managing director, Constructing Equality

I’m not convinced it is going to work as problems with late payment are a much wider challenge for the sector so we need something much much stronger that doesn’t just target main contractors. In addition, some of the big firms that have signed up to this are some of the worst offenders when it comes to late payment, so this Charter could be an elaborate form of publicity scam designed to make them look better.

Ultimately ensuring timely payment should be tied into the procurement process, the industry always seems to forget the fact that the client has anything to do with this, and many main contractors have to pass late payments down the supply chain because they are paid late by their clients. That needs to be understood otherwise we are just targeting the middle link in the chain.

We should also remember that even if main contractors sign up and put 30-day payment clauses into contracts, they are still likely to question valuations and other aspects and find other reasons to delay payments. I know of large main contractors that signed up to a previous fair payment scheme who found a loophole that forced some subcontractors to take a 10% discount to gain their 30-day payment, which could happen again here. 

Ian Brant FCIOB, associate director, Brant Associates

The charter is a step forward but it does not address the many other payment-related pains suffered by the supply chain beneath main contractors. Not until sanctions or penalties are applied to main contractors who deliberately undervalue interim applications, for their own positive cash flow, or issue spurious pay less notices, will the subcontractors’ payment position really improve.

In terms of enforcement, the suggestion of a yellow and red card system designed to flag up non-compliant main contractors and then ban them if they re-offend would certainly provide a focus in the public sector, but how much attention will the private sector pay to a voluntary charter? I suspect very little.

The Charter’s proposal to ban retentions from 2025 would have limited impact. I have spoken to subcontractors who build in sums within their pricing to cover the potential of not being paid the retention.

Vance Babbage, MD, B&M Babbage

Any move to ensure subcontractors are paid and paid quickly has to be a good thing for the industry in general, but you have to ask yourself why any businesses would think it morally ok to wilfully avoid the prompt settlement of payments in the first place? It’s a sad indictment of the industry that we should have to ask people to treat people fairly when it is something we should all be aspiring to.

You might say this naive, but my father was a third generation builder in the 1950s whose clients would practically force their money into his pocket they were so happy the job had been done well and on time. Nowadays people have to send numerous emails and letters requesting payment or threatening action just to get what they are due. We may be suffering from the residual effects of the subbie-bashing that went on in the 1980s, which was sometimes seen as something main contractors should be proud of. It’s easy to forget that there are real people at the end of this, tradesmen whose businesses can go under fast if even a couple of payments aren’t made on time.

Arnab Mukherjee FCIOB, capital works programme delivery manager, Wokingham Borough

The idea and the principle is something that everyone in the industry will support, however, I am not sure if the practicalities have been thought through in terms of the actual implementation. As a client, with a direct interface with the Tier 1 suppliers, this is something that can be incorporated within the working arrangement perhaps through a specific clause in the contract. However, when it comes to the compliance and monitoring, I am not sure many clients will be able to enforce this.

A similar sort of effort was started in 2008 with the OGC Charter and then Cabinet Office attempted to provide some impetus in 2010, but for a variety of reasons the take up within the public sector did not reach the levels that were being hoped for.

Fair payment goes hand in hand with trust and relationship, but we must acknowledge that most main contractors do their business through cash flow management and how they set up their payments with their suppliers happen to form an important element of their cash flow management. The idea of enforcing a payment regime, as opposed of having an embedded regime, is bound to encounter difficulties and unless the environment and the incentives are there for all the interested parties, nothing else will make much of a difference.