July 08, 2019
Fair payment is vital to innovative delivery
In my last editorial, I focused on issues central to changing the way the construction sector operates. This included greater collaboration and moving towards greater use of modern methods of construction, underpinned by digital design and advanced manufacturing techniques.
However, for innovative approaches to be developed, we need to have the right basic conditions in place. Businesses cannot focus on innovation if they are struggling to keep their heads above water and pay bills.
As member of parliament Debbie Abrahams reminded all of us at the NEC Users’ Group’s annual seminar last month, the UK construction industry continues to be characterised by poor payment practices, with suppliers not being paid fairly or on time. We continue to see the use of lengthy payment terms or delays in paying invoices throughout the supply chain.
Improving payment practices
The UK government is determined to eliminate poor payment practices and ensure fair payment and timely cash flow, particularly for smaller businesses. Speaking at the Royal Institution of Chartered Surveyors’ annual construction conference in May 2019, implementation minister Oliver Dowden said, ‘Small businesses are the backbone of the UK’s economy, so it’s vital that we support them – and one of the key elements of that is making sure they are paid on time.’
The government is encouraging actions to reduce risks to small businesses and ensure promptness and certainty around payment. These include the following.
- Using project bank accounts on all government construction projects unless there are compelling reasons not to.
- From September 2019, preventing companies from winning government contracts if they fail to demonstrate prompt payment to their suppliers. It is already a statutory requirement for companies to report on their payment practices, policies and performance on a half-yearly basis, and publish these through an online service provided by the Department for Business, Energy and Industrial Strategy.
- Supporting industry-led payment performance league tables, such as that published six-monthly by Build UK.
NEC users will be familiar with the fairpayment principles provided within NEC3 and NEC4 contracts. These include monitoring and reporting on payment periods and payment mode, a 10-day payment pledge and an obligation in main contracts to include fair payment periods in subcontracts and subsubcontracts. NEC also supports the adoption of project bank accounts unless there are specific reasons not to do so.
By embedding fair-payment principles in our contracts we can start to change the current culture and approaches to payment. We can then really start to effect a transformation in infrastructure performance, from traditional to more modern methods of construction enabled by digital and manufacturing technologies.
Already five of the government’s major construction-spending departments (transport, education, health, justice and defence) have committed to a presumption in favour of offsite manufacturing across suitable capital programmes where this represents best value for money.
The government is also about to publish further details of its proposed ‘platform approach to design for manufacture and assembly’ (P-DfMA). This seeks to use the collective buying power of government departments to aggregate demand for platforms of components that can be used across different assets. It would drive a new market for manufacturing in construction, which in turn would boost productivity, innovation, efficiency and quality within the sector.
A call for evidence that closed in February 2019 resulted in 62 industry responses, most of which were overwhelmingly supportive. It remains a challenging time for many in the UK construction sector given the country’s imminent exit from the European Union. But by improving the way we work, we can progress the way our projects are delivered and achieve better outcomes for all organisations in the supply chain.
Written by Dr David Hancock, NEC Users' Group Chairs
POSTED BY NEC Contracts