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Faster payments to ease pressure on supply chains

Pressure on small subcontractors' cashflow caused by the credit crunch was this week forcing clients and major contractors to consider speeding up payment for construction work.

The Olympic Delivery Authority said it was cutting its payment period from 30 to 18 days.
And water industry trade body British Water said that its contractor members were considering easing payment terms to take pressure off their suppliers' cashflows.

There is concern that banks are cutting loan facilities to construction suppliers, making it harder for them to stay in business as they await payment from clients and main contractors.

Olympic Delivery Authority chief executive David Higgins told NCE that payment terms at 2012 Olympic sites are being improved to help smaller businesses with their cashflow.

He described the credit crunch as "a very serious correction for the industry" adding: "What it will mean for cashflow for contractors and suppliers is obviously crucial. We have to be extremely careful. These sorts of cycles have a real down-side for the industry so we are really focusing on payment, on ensuring that we hit our 18 days for payment.

"We set that out three years ago to pay within 30 days – not only us but also our Tier 1 contractors. We are now aiming for 18 days. We will certainly get undisputed bills through in 18 days."

Higgins said the ODA recognised the importance of cashflow years ago and is now keeping a close eye on its supply chain.

"If contractors get into a problem then that is when things emerge. The best thing that we can do is to ensure early payment and run the site very competently," he said.

"I see us as a service provider on the site to our contracting partners – to help them to run as efficiently as possible."

British Water director Paul Mullord said member companies had discussed making payment terms more favourable to smaller suppliers, but said no action had yet been taken.

"In the past payment terms have always been fine, but some members are concerned that the effects of the credit and liquidity crunch could put some of their smaller suppliers at risk," he said.
Civil Engineers Contractors Association (CECA) director Rosemary Beales said: "Contractors of all sizes are experiencing cash flow problems, seeing work in hand reduced, having payment terms stretched and finding new opportunities are suddenly being procured on cost not quality."

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