New tools to drive better payment terms in the sector are showing mixed progress. Figures released by the government show it has exceeded its target to roll out project bank accounts on centrally funded jobs, while the Construction Leadership Council’s fair payment charter is still to go live three months after it was announced.
Francis Maude, minister for the cabinet office, said last week that £5.2bn worth of government construction projects are now being paid through project bank accounts, which amounts to nearly half of government projects. The 2011 Government Construction Strategy set a target of £4bn of contracts to be using PBAs by 2013-2014.
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However, the voluntary Supply Chain Payment Charter, intended to drive 30-day payment terms across the industry, is still being drawn up after being announced in April. Eight firms have agreed to be signatories to the charter, but according to the Department for Business, Innovation and Skills, there has yet to be a major push on its take up until the details of the charter have been drawn up by the Institute of Credit Management.
A BIS spokesperson said: “Until we’ve got processes, no one will be asked to put their name to the charter. The people listed have just indicated that they would sign up and become signatories.”
BIS said that there was as yet no timetable for the drawing of the wording of the charter, which is being carried out by the Institute of Credit Management.
A spokesperson for the Institute of Credit Management said the Institute was currently negotiating the KPIs and monitoring arrangements with stakeholders.
However, SEC Group’s CEO Rudi Klein told Construction Enquirer that the news of the success of project bank accounts was a major advance in securing prompt payment for the supply chain. He said: “PBAs are the most effective mechanism for ensuring that firms are paid on time and in the right amount. Francis Maude’s statement indicates that almost half of the total of government construction is being paid through PBAs.”
He added: “We are getting reports that many local authorities are now using PBAs and they are also being used by the devolved governments in Scotland, Wales and Northern Ireland.”
The fair payment charter sets out 11 “fair payment commitments”, including a pledge to reduce payment terms to a supply chain to 30 days from January 2018. The charter also sets out stages before this: terms of 45 days from June 2015, and 60 days with immediate effect.
Other commitments made in the charter include not withholding cash retentions, not delaying or withholding payment, and making payments electronically.
Any organisation that becomes a signatory to the charter agrees to apply the fair payment commitments in its dealings with its supply chain; to be monitored for the purposes of compliance by reporting against a set of agreed key performance indicators; and to consider the performance of its supply chain against those KPIs when awarding contracts.
Companies represented on the Construction Leadership Council that have agreed to sign up to the charter include Barratt Developments, Laing O’Rourke and Skanska.
Meanwhile, the National Audit Office has carried out a survey on payment times as part of its Value for Money report which will be published in October, looking at government contracts across construction, FM and ICT. Following the report, there could be a Public Accounts Committee hearing into the issues.
