Fair payment: long overdue
Since the collapse of Carillion exposed the vulnerability of the supply chain, how much progress has the industry made? Victoria Brambini, managing director of Scape Procure discusses fair payment.
The events, now more than seven months ago, revealed not just how dependent Small-Medium sized Enterprises (SMEs) are as suppliers to major contractors, but also how important work generated through public sector contracts is for small businesses and their financial stability.
Many SMEs were largely dependent on those contracts and were also made to experience an unacceptable, shocking delay for payment: some as long as 120 days. This was despite the Construction Supply Chain Payment Charter (CSCPC) setting a maximum 30 day payment target.
It was a wake-up call for the industry, the public sector and policymakers, who are rightly concerned about the welfare of SMEs, who form the backbone of the British economy and enable the construction industry to prosper.
It is now a legal requirement for all large companies to report on their payment terms for suppliers every six months, with all data published on the government’s payment practice portal.
Although there has been positive progress on fair payment practices within the construction industry in recent months, and the problem is at least now widely recognised, there clearly remains much more to do.
Councils as fair payment champions
Local authorities have a role to play in driving for lasting change. Sub-contractors on local authority projects are, in most cases, local SMEs, and make a vital contribution to the local economy. By ensuring that suppliers get a fair deal through the contracts commissioned by local authorities, councils are better equipped to achieve their ultimate socio-economic objectives for their communities.
Local authorities are uniquely placed to influence outcomes for the supply chain through their purchasing power. As fair payment champions, they can drive change across the supply chain through their construction projects.
Victoria Brambini, managing director of Scape Procure
Local authorities should also strive to do better than payment within 30 days. As set out in our recent Essential Infrastructure Report, Scape is calling for a commitment from commissioning clients to ensure payments to Tier 1 contractors within 14 days, for contractors to pay Tier 2 suppliers within 19 days and Tier 3 suppliers within 23 days, exceeding the current requirements of the CSCPC.
We know that this is possible, because we performance manage our framework delivery partners to meet these ambitious targets across the £4.5bn of live commissions for our public sector clients across the UK. Currently, 91 per cent of payments to Tier 2 suppliers on Scape frameworks are made within 19 days, and where not achieved, we work closely with our framework partners on improvement plans. These include improvements to contractors’ systems and processes, which if adopted, can benefit the entire supply chain.
With Brexit on the horizon, we can expect a sustained period of economic uncertainty. Now more than ever, local authorities must provide stability and certainty for their supply chains through fair payment practices.
Victoria Brambini will be speaking at the Construction News Summit in London, on 21 November, in a panel discussion on fair payment. Click here to join us at the event.
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