Barrister Rudi Klein, the chief executive of SEC Group, urges all specialist contractors to lobby their newly-elected MPs to support effective measures on payment.
Whoever you voted for in the General Election specialist contractors should send a very simple message to their newly-elected MPs. Unless they support legislation to enhance payment security for construction SMEs, the industry will continue on a downward spiral of declining investment in jobs and skills and of falling standards and quality. In contacting the new MPs we should not hold back. MPs should understand that SMEs create the bulk of the industry’s value and the future survival of many of these companies depend on MPs supporting measures to ensure that they are paid.
“Construction insolvencies worse than any other sector”
Insolvencies in the construction industry are running at their highest rate since the recession. Over 30,000 SMEs in Carillion’s supply chain lost monies when Carillion collapsed in January 2018. The Business Select Committee in the House of Commons concluded that Carillion had treated them with “contempt”.
I have caught sight of the news which is that Wetheralds, a Leeds-based specialist painting and decorating contractor, has been forced into liquidation by a string of main contractor bad debts. The company had worked on a large number of high-profile jobs across the UK over the 33 years of its existence.
The final blow for this firm was the loss of £150,000 for work done for the Simons Group which went into administration in October. This came on top of £911,000 worth of unpaid work for the Shaylor Group which went into insolvency in the summer. One of Wetherald’s directors said: “We’ve never seen anything like this in all our years of business…..bigger firms are a law unto themselves now. Pay less notices and major firms not paying are driving good firms out of business.”
This is a picture that is reflected in the four corners of the UK. Earlier this year Dundee-based building services company McGill & Co. collapsed with the loss of 425 jobs. This company had been going since 1981. Its administrators blamed delays in payment on a number of significant jobs. In Northern Ireland an M&E contractor, Blackbourne Ltd, went into insolvency in September. Blackbourne operated across the UK. One of the causes of its insolvency was the Carillion collapse. In March Wales suffered its own version of the Carillion collapse; main contractor Dawnus went bust with almost £40 million left owing to its sub-contractors.
WHAT SHOULD WE BE TELLING THE POLITICIANS?
Every specialist contractor needs to make known these problems to all MPs. But first and foremost, each must draw on its own experiences of payment abuse. How many of your payments are made late? How many payments are for amounts that are less than the amount applied for? Have you lost significant sums as a result of insolvencies?
ON PUBLIC SECTOR PROJECTS TIER 1 CONTRACTORS – UNLIKE THEIR SUBCONTRACTORS – DO NOT CARRY ANY INSOLVENCY RISK: PUBLIC BODIES DO NOT GO INTO INSOLVENCY.
Always emphasise the broader impact of payment abuse. It is a substantial cause of mental health issues amongst business owners and senior employees which, in turn, has repercussions for family relationships. A recent industry survey revealed that over 90% of business owners and senior employees experienced mental health issues to do with payment abuse – from stress and anxiety to suicidal thoughts.
Also, poor payment practices help drive poor behaviours which, in turn, drive poor quality (according to Dame Judith Hackitt who produced a report in May 2018 on improving building safety – following the Grenfell tragedy).
GET AN EMAIL OFF TO YOUR NEWLY-ELECTED MP ASAP
Dear [name of new MP]
PAYMENT ABUSE IN THE CONSTRUCTION INDUSTRY
First, I’d like to congratulate you on being elected to the House of Commons. I’m involved in a business delivering [indicate the nature of your business] within the construction industry. [You can find your MP by going to the UK Parliament website (www.parliament.uk) and inserting your postcode.]
You may be aware that the construction industry is notorious for payment abuse whereby large companies often bully SMEs into accepting lengthy payment terms and find spurious excuses for not discharging due payments. Carillion was a prime example of this behaviour.
In January 2017 and January 2018 there were introduced two Private Members’ Bills on payment security. The first sought to protect retention monies in a ring-fenced account. Retention monies are generally used to bolster the poor finances of large companies (ostensibly they are deducted from due payments in case a firm fails to return to rectify non-compliant work). It could take upwards of 3 years for retentions to be released; for many firms they represent their profit margins.
The second was the Project Bank Accounts Bill. This would have protected progress payments due to firms in the supply chain (especially against insolvencies up the supply chain). With project bank accounts everybody receives their payments from the same “pot” and everybody is paid within a maximum of 20 days.
Payment abuse in the construction industry is now taking its toll both on mental health and on quality and standards. In a recent survey over 90% of those involved in running businesses in construction reported mental health problems because of payment problems (ranging from stress to suicidal thoughts). Dame Judith Hackitt, who delivered a report on building safety after Grenfell, observed that poor payment practices drove poor behaviours which, in turn, drove poor quality.
Therefore I invite your support for legislation to:
- Ring-fence progress payments in project bank accounts;
- Protect retention monies;
- Mandate 30-day payments;
- Debar serial bad payers from public sector work, and
- Completely outlaw pay when paid clauses.
Would you kindly let me know that you would support such legislation and, additionally, whether you would be interested in seeking to lay a Private Members’ Bill?
I look forward to hearing from you.
[Your name and business]
If every specialist contractor in the UK was to email its MP in this way, this would send a powerful message to the politicians that action on payment is now required.
Please send any positive responses to Rudi.Klein@secgroup.org.uk