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Small builders demand late payment action

Small builders and subcontractors last week added their weight to criticisms of main contractors who fail to pay suppliers on time.

Criticism from the Federation of Master Builders (FMB) is contained in a challenging new report to the government.

The FMB recommended action on fair payment and urged clients to force contractors to pay their suppliers within 30 days. The FMB believes that some main contractors are bypassing its members in favour of firms which accept late payments. 

 “FMB members report that main contractors are often less willing to deal with good, experienced smaller firms and prefer to subcontract to the smallest businesses that accept almost any terms and conditions dictated by the main contractor, such as poor payment practices,” says the report.

This makes it difficult for small and medium sized enterprises (SMEs) to get onto framework agreements, says the FMB.              

Earlier this month, Carillion came under fire for imposing 120 day payment terms on its suppliers (NCE 6 June).

The FMB report says some contractors are even worse, forcing subcontractors to wait more than 200 days for payment.  

The report Improving public procurement for constructionSMEs notes that some clients have developed supply chain engagement programmes (SCEPs) to help SMEs build partnerships with  Tier 1 contractors. The FMB report welcomes this but says more must be done to properly engage with supply chains and ensure they are not being dictated to.

It recommends that all public sector clients build on their commitment to fair payment in principle by mandating, via contract terms, the payment of subcontractors by main contractors within 30 days. This will help ensure fair payment principles become a reality throughout the supply chain, it says. The government does have a prompt payment code asking that suppliers be paid within 30 days, but it is not mandatory.

The Cabinet Office said it was championing prompt payment.

“Prompt payment to the supply chain is a key priority for us,” said Cabinet Office minister Chloe Smith, speaking at the launch of the report.

“We have pursued fair payment through the use of project bank accounts or a contractual requirement for 30 day terms to be passed to subcontractors.

“We are well on our way to exceeding our target of £2bn of committed spend being contracted via project bank accounts since their launch.”

The FMB report also criticises the Cabinet Office’s Mystery Shopper Scheme, which allows suppliers to anonymously report bad procurement practice.

 It says this is often seen as being “ineffective” by construction SMEs as any recommendations from central government to public sector clients do not necessarily have to be taken on board. The FMB claims that unless bad practice is considered extremely serious, it is rarely followed up by the Cabinet Office.

Smith defended the scheme and cited figures to the end of May that showed that the Mystery Shopper had received 425 complaintss and closed 336 with a positive outcome in over 80% of cases.

Rise of the framework agreement

The Federation of Master Builders (FMB) says that SMEs accept that framework agreements will continue to be used as a means by which to help deliver “so-called” efficiency savings. 

However, it is clear that framework agreements are perceived as a barrier to SMEs’efforts to win public sector work. Fifty one per cent of FMB members report that their workloads have decreased as a result of the introduction of frameworks.

Many FMB members report that they often fail to win work under framework agreement s because public sector clients are too cautious about assessing a firm’s capacity to deliver. 

They complain that companies are often assessed in terms of the size of their turnovers.

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