It’s summer, so the heat is on outside. And heat of a different sort is on, with controversy still swelling in the United Kingdom.
No, not Brexit, though that is a given. The debate over what to do about late payments is still on. Several organizations and new reports have shone a spotlight on the continued pervasiveness of the problem.
For starters, trade organizations in the U.K. — specifically the Building Engineering Services Association (BESA) and the Electrical Contractors Association (ECA) — have stated this month that the overwhelming majority of councils are not, in fact, doing their jobs of making sure that suppliers are meeting the 30-day payment terms mandated by the three-year-old Public Contracts Regulations.
It’s a pretty high percentage, equating to 90 percent of the councils, said the trade bodies. That claim comes after freedom of information requests found that it’s the percentage of 195 councils, which provided details that did not meet those aforementioned terms. Just about half of those who responded said they didn’t have requirements, or the knowledge that they had requirements, to pay within that 30-day period. And as many as 18 percent said they had no intention of using that payment term in contracts that may be drawn up in the future.
As noted in Construction News and other publications, Rob Driscoll, who serves as deputy director of business and policy with ECA, stated that “non-compliance by the public sector with the Public Contracts Regulations is unacceptable. This is especially significant, given the cautionary tale of the collapse of Carillion (one of the key strategic suppliers to government), which ultimately had a wider impact on [SMBs].”
Separately, and also in the U.K., The Times reported that yet another organization, the Specialist Engineering Contractors’ Group, has said that more than half of local government authorities were, in fact, using funds for their own aims — where the monies had been owed to entities up and down their respective supply chains. The funds are being used to help those councils’ working capital holdings. The contractor group said that, of the 353 local authorities queried (also through freedom of information requests), 75 of those entities said they had held back as much as 5 percent of a contract’s value from suppliers.
For bigger picture analysis, Business Expert estimated that more than 3.5 million public sector jobs in the U.K. are at risk due to late payments. Additionally, of smaller firms that are taking out debt, roughly 68 percent are using that funding as cash flow — and it is the smaller firms that are likely to be paid late, the data noted.
For Late Contractor Payments, Look Not Just To The U.K., But Italy Too
Lest one think that the U.K. is the only market with late payments hitting the construction industry, consider Italy, where Bloomberg reported that Deloitte is tapping into the market and offering contractors the chance to sell their unpaid balances from public work projects. They can sell them at a discount to a number of parties. Deloitte has a platform in place that matches the construction firms with buyers (in this case, investors). The rights to suit payouts go to those investors.
The chance to get something for the work performed is a lure, compared to waiting it out in court to collect, noted Bloomberg, where suits can take more than 400 days to winnow through the courts. Deloitte said it has garnered 1 billion-worth of euros from mid-sized contractors, who in turn have 400 million euros-worth of annual revenues.