Government-backed fair payment charter due for rocky relaunch in 2016

The Construction Supply Chain Payment Charter – a flagship initiative of the Construction Leadership Council – is expected to be relaunched in early 2016, but early indications are that securing support for the revised and finalised Charter might not be plain sailing. 

Two of the original nine firms that backed the charter at its launch in April 2014 have confirmed to Construction Manager that they have reservations about the document.

In one case the firm first wants to see clients sign up to the same payment terms before it signs, while the other says it has received information that the charter is now more ambitious – and hence more onerous – than the original document.

However, trade association BuildUK says that its members voted to back the document in October, and that a roll-out plan for the Charter is due to be discussed at the next meeting of the slimmed-down Construction Leadership Council in January. 

When the document was originally unveiled, in April 2014, it was due to apply to all contracts from 1 January 2015. It specified payment within 45 days on all contracts immediately, decreasing to 30 days by 2018. This would bring private sector projects into line with existing rules on public sector work. 

In addition, it also pledged to limit retentions and outlaw them by 2025, and measures to limit any financial benefit main contractors enjoy by offering supply chain finance arrangements to their supply chain contractors. 

However, a spokesperson for one of the firms that originally backed the document said that it had recently been briefed that the 2018 target for 30 day terms on all contracts had changed to 2016.  

He said that the firm very much supported the Charter’s aims, but “the terms had changed, and given the current state of the market, it [2016] isn’t doable”.

The other firm with doubts said that no one from BIS had "come back to the table" to discuss the issue with them.

When it was unveiled by the Department for Business, Innovation and Skills in April 2014, nine firms announced that they were prepared to sign up: all nine were also directly represented on the Construction Leadership Council of the time. 

The group consisted of Laing O’Rourke, Skanska, Berkeley Group, Barratt, British Land, Stanford Industrial Concrete Flooring, Kier, Stepnell and Imtech (part of which entered administration in September).

Following the launch, the Chartered Institute of Credit Management (CICM) was charged with drawing up a method of monitoring compliance and devising KPIs on payment performance. However, no further details were ever published, although a CICM press release listed on the BuildUK website and dated 1 June 2015 suggested progress had been made.

That press release also invites construction companies to sign up, and the CICM website suggests that just two have: SME subcontractors WJM Building Services and Interceil. However, the BuildUK spokesperson indicated that the Charter’s formal launch and sign up procedures have still be agreed by the Construction Leadership Council.    

Construction Manager has contacted both BIS and the CICM for comment, but neither has responded so far.

But Rudi Klein, chief executive of the Specialist Engineering Contractors’ Group, and a long-term campaigner on fair payment issues, suggested that the Charter would struggle to gain support among the main contractor community, as it had in many ways been superseded by other forms of statutory regulation. He also argued that Project Bank Accounts (PBAs) were a far better way of enforcing fair payment along the supply chain. 

He said: “It’s been overtaken by the reporting requirements following the Business Act 2015, where all large companies [over 250 employees] will have to display a statement on their website about their payment performance.

“And also we now have the Public Contracts Regulations 2015, which specifies that all contracts down to Tier 3 need to state that payment will be made within 30 days.”

The Public Contracts Regulations apply to all government departments in the UK, and all public bodies in England. 

Klein added: “It’s fundamentally naive to believe that people signing up to a voluntary charter will change the payment problems in the industry, it’s been tried before and abandoned [when the Office of Government Commerce launched a scheme for government projects]. Charters go down well, but they don’t fundamentally change the situation.

“PBAs are now almost mandated on UK government projects. Highways England [which operates PBAs] is already paying Tier 3 contractors within 19 days of the assessment date on the main contract. Why are people still looking for other solutions when PBAs are clearly working?”