April 23, 2020
Fair payment is vital for a strong and healthy construction sector
Poor payment practices in the construction sector continue to come under close scrutiny, particularly since the liquidation of Carillion two years ago. The number of UK construction firms falling into administration has risen significantly in recent years.
As I have reflected previously, if construction businesses are to innovate – such as through modern methods of construction and digital engineering – it is important to ensure that fair and prompt payment operates across the construction industry. Late payment also contributes to the rise in mental health problems being experienced in the industry. At last year’s NEC Users’ Group annual seminar MP Debbie Abrahams spoke about the poor payment practices that continue to characterise the construction sector, with suppliers not being paid fairly or on time. This reflects the continued use of lengthy payment terms or delays in paying invoices throughout the supply chain.
The UK’s new government has set out its ambition to deliver ‘an infrastructure revolution’, with an additional £100 billion investment commitment. It is therefore critical to drive out poor payment practices and ensure fair and prompt payment throughout the supply chain so that these projects can be successfully delivered.
Project bank accounts
NEC users will be familiar with the fair payment principles provided within NEC3 and NEC4 contracts, including the adoption of project bank accounts unless there are specific reasons not to do so.
In England the current policy for government departments is to use project bank accounts on all government construction projects unless there are compelling reasons not to. They are one of the tools that can facilitate fair payment and, while not suitable for all projects, they meet the requirements for a wide range of projects depending on the size and value of the supply chain and the duration of the project.
As such the government’s approach has been not to mandate the use of project bank accounts but to raise awareness with departments on when they are suitable, how they can be best utilised and ensuring they provide value for money.
Other fair-payment measures
But given there is no ‘silver bullet’ to the problem of poor payment practices, the government has put together a package of measures to drive the agenda, including the following.
- Taking account of payment approaches in the procurement of major government contracts – failure of contractors to demonstrateprompt payment to their suppliers may result in them being prevented from winning government contracts.
- Requiring contractors to report on their payment practices, policies and performance, and publish these half-yearly through an online portal as part of their duty to report.
- Increasing transparency on payment performance through industry-led payment performance league tables, such as that by Build UK for their members’ payment performance.
- The use of contracts such as NEC to embed fair-payment principles.
By taking such measures the government hopes to start changing the current culture and approaches to payment. Certainly the latest Build UK data (31 January 2020) indicates continued improvement, with its members now taking an average of 36 days to pay invoices, down from 45 days just 18 months ago. The organisation also reports that on average its contractor members now pay 91% of their invoices within the statutory 60 days, up from 80%.
I encourage all NEC users to play their part in helping to ensure that fair and prompt payment by clients and contractors becomes the norm rather than the exception.
Written by Dr. David Hancock, NEC Users' Group Chair
POSTED BY NEC Contracts