Contractor Carillion has this week come in for renewed criticism of its decision to impose standard 120-day payment terms on its supply chain.
Under Carillion’s so-called Early Payment Facility, introduced late last year, payment terms default to120 days but suppliers can access payments earlier on payment of a fee.
The contractor says the move is in support of prime minister David Cameron’s Supply Chain Finance Initiative, which is aimed at getting large companies to help their supply chains access credit and improve cash flow.
Carillion’s facility allows earlier payment based on payment of a fee on a sliding scale. For example, a supplier traditionally on 65-day payment terms could get a £10,000 invoice paid within 40 days on payment of a £15 fee.
But suppliers have been unhappy at the move, with trade body the National Specialist Contractors Council last month describing it as “grossly unfair” and writing to Cameron to ask him to intervene. In response Carillion last week held a supplier day to attempt to answer criticism.
But suppliers that spoke to NCE following the day remained unconvinced. “Yes we can get paid earlier than 120 days, but only if we pay a fee,” said the director of one supplier “The real issue is if Carillion get away with it then they will all start to do it,” he said.
The NSCC has recommended that government and local authorities clearly set out and implement a policy of only awarding contracts to those businesses that comply with the Late Payment of Commercial Debts Regulations 2013 and pay in 30 days on all projects funded by the public sector.
It also wants the Prompt Payment Code (PPC) reviewed and ‘prompt payment’ defined as within 30 and 60 days for public and private work respectively. The body says it is “disingenuous” that companies that implement extended payment terms such as Carillion are able to sign up to the current PPC.
A recent survey undertaken by Constructionline revealed that nearly a third of specialist contractors had refused to work for a main contractor because of their poor payment practices.
However, the NSCC warns that it is difficult for them to negotiate on payment terms with main contractors and they have little or no practical choice other than to accept what is proposed or they risk losing the work.