Putting an end to unfair payment practices

29 May 2018

As a member of Build UK, BWF is supporting the Build UK response to the Government consultation which proposes to exclude suppliers from major Government procurements if they cannot demonstrate a fair, effective and responsible approach to payment.

Whilst fully supportive of Government’s efforts to enforce prompt payment, as confirmed at a recent roundtable with Minister for Implementation Oliver Dowden MP, Build UK will highlight the need to build on existing initiatives and ensure any requirements are implemented consistently across the public sector. BWF has already written to Mr Dowden on this matter:

Dear Mr Dowden,
I read with interest and some enthusiasm this week your comments on improving procurement and as part of this clamping down on late payment – the contracts finder website is a good initiative and we hope it will be a real success.  On late payments, at the British Woodworking Federation (we represent the wood products sector, circa £3.8 billion in the UK), this is a subject very dear to our heart.  The recent Carillion failure was hard on companies in our sector (and I do not believe we have seen the full impact yet) with retentions and late payment contributing to the damage (£700m worth of retentions were lost in construction over the last three years due to upstream insolvencies).  We are hopeful that the Peter Aldous Bill being hear on the 27th April presents a way of starting to deal with the retentions issue, but fair payment is a challenge (we agree fully with his proposals), but beyond retentions, late payment remains a cancer at the core of our sector. 
My concern is that the enforcement again remains out of proportion to the scale of the problem and that behind the encouraging words the activity remains passive.  In your quote below, you use the term “should not” when linking payment to contracts:
“It is right then that the government today announces, as part of a new package to boost SME procurement, that it will clamp down on poor payment practice throughout public procurement supply chains. Companies who pay late should not be rewarded with public sector contracts. We need a robust public procurement process that holds larger companies to account for their payment practices.”
Already we have in the public sector 30 day terms, but this is often flouted (with Carillion being a prime example).  We need active and robust enforcement of this sentiment, including clear examples of where companies are removed from tenders and this to publicised.  To demonstrate this, below I have picked at random one contractor from the payment practice website.  Genuinely this is the second one I picked and there was no report on the first one, I have redacted the company name because I did not want this to appear as an attack one one company rather than to exemplify an endemic problem:
Reporting Period 1st July 2017 - 31st December 2017
Payment Statistics: Average time taken to pay invoices 57 days
Invoices paid:
Within 30 days 22%
in 31-60 days 42%
in 61 or more days 36%
Invoices due, but not paid within agreed terms 81% 
It is often said that companies do not have to work for companies with poor payment practice, but we cannot look past the fact that the public sector remains the largest client in construction and it is simply not right that SMEs are left exposed and undermined in this way.  Working capital is vital to planning investment and supporting productivity improvement, chasing monies saps time and energy out of businesses and protecting oneself through credit insurance, raising monies and managing debt becomes more problematic and expensive.  
We are calling for a more robust approach where “should not” becomes “will not” and the Government really gets behind the SME to help drive a more positive and more productive construction sector built on fair payment principles. 
Simply put, the above report should be followed by “AND IS HENCE INELIGIBLE FOR THE AWARD OF PUBLIC CONTRACTS”.
I welcome your thoughts, encourage your efforts so far am more than happy to make the time to discuss this in person with you or a member of your team.
With kind regards,
Iain McIlwee
Chief Executive
British Woodworking Federation

Please send any comments to iain.mcilwee@bwf.org.uk by Monday 4th June.

Build UK has also committed to benchmarking Contractor members’ payment performance on two key metrics, the average time taken to pay and the percentage of invoices not paid within terms, using data published under the new Duty to Report on Payment Practices and Performance. From the end of July, information will be available on the Build UK website for 21 out of 27 Contractor members, with the rest to follow by October. Further information on the Duty to Report can be found in the Government Guidance.

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