好色先生TV

Payment practice is probably the most vexed issue in the whole of construction, and the prolonged recession which the sector is just emerging from has only made the suspicion and enmity on either side deeper. Payment terms of 120 days, retention periods of two years, contractors arguing the tossover contracts simply to hold on to cash a little bit longer: all of these things have fuelled this divide.

But according to the sector鈥檚 industrial strategy, Construction 2025, produced jointly by industry and government last year, it doesn鈥檛 have to be like that. The strategy recognises the current problems, but lays out a vision of an industry by 2025 where construction supply chains 鈥渢hrive鈥� because payment practices have been addressed. And this week the Construction Leadership Council (CLC), formed to drive progress toward the 2025 vision, took the first concrete steps to realising this change.

The business department which the CLC reports to this week outlined how a new fair payment charter, designed to drive improvement in this area, will work, with the full version to be published later this month. The charter will ask clients, contractors and subcontractors in the public and private sector to commit to a stepped programme of steadily shorter payment times, until all payments are made within 30 days by January 2018 (see box). It will also make a number of recommendations, including around the use of project bank accounts, and will call for an end to retention payments.

It is a noble idea, but without legislation, is it workable? The fear is people will pay lip service to this, but then just ignore it

Tony Williams, 好色先生TV Value

The charter, agreed after lengthy negotiations between the clients, contractors, specialists and consultants on the CLC, and drawn up independently by the Institute for Credit Management, is designed to vastly improve the relationship between client and contractor, and between contractor and specialist. But questions as to the exact terms of the charter, and how it will be implemented and enforced, will be crucial to determining whether or not it succeeds.

The headline terms of the charter have already been welcomed by many in the supply chain. Steve Sutherland, chair of glazing specialist Dortech, has previously hit out at the culture of poor payment in construction. He says that if enforced, the charter will be a step in the right direction. 鈥淎nything that will improve the current uncertainty that subcontractors face will be a step forward. You could argue that the better payment times don鈥檛 come in quickly enough, but everyone鈥檚 suffered in this recession, main contractors included. You have to be realistic about what鈥檚 possible,鈥� he says.

The initial signatories of the charter - not yet announced - are likely to include the main contractors on the CLC, including Skanska, Kier and Laing O鈥橰ourke, with the charter鈥檚 dissemination then thought to be driven by the CLC via the industry鈥檚 trade bodies. Main contractors are also supportive in principle, given that many stand to benefit themselves if clients also sign the charter. Morgan Sindall鈥檚 managing director Graham Shennan says: 鈥淚鈥檇 support any fair payment charter. If the whole industry did this, it would create a level playing field.鈥�

Shennan argues that poor payment practices simply add cost in the end. 鈥淭he industry gets what it pays for, and those subcontractors that can withstand long payment times either have a different business model or somehow you鈥檙e paying more for them,鈥� he says.

Main contractors鈥� support may also have something to do with the relative success the government has been having in driving the use of project bank accounts (PBAs) on publicly funded construction schemes. These involve putting subcontractors鈥� fees into a separate account which cannot be accessed by the main contractor, stopping them from using the cash that flows through their business to bolster their own balance sheet - a practice which has always been part of how contractors work.

Contractors such as Kier and Mace claim the use of PBAs will push up the cost of work. Certainly compared to an obligation to use PBAs, simply paying subcontractors promptly will have a much less dramatic effect on contractors鈥� cash balances, and is clearly a preferable alternative. 鈥淭he impact of project bank accounts has been significant. Construction is not as cash-generative as it was, and ultimately the margins may have to go up to compensate,鈥� says Shennan

However, if the charter is to be effective, it will need more than warm words of support. In 2007 the then new Labour government drew up its own fair payment charter, which was launched in 2008. But Rudi Klein, chief executive of the Specialist Engineering Contractors鈥� Group (SEC Group), says this was then ignored because public sector clients made no attempt to monitor or enforce it. The failure of this charter to reform the industry鈥檚 practices is evidenced by the need for the CLC鈥檚 initiative, which is just one part of a raft of government efforts to change how the public sector acts as a client designed to tackle this problem. The government has already specified approved payment times for central government work, started the roll-out of PBAs, and is due to legislate for 30-day public sector payment times later this year. Klein says: 鈥淲e鈥檝e tried charters before and they haven鈥檛 really worked.

If this is going to make a difference, then it鈥檚 going to have to have a way to ensure compliance. What are the consequences if you don鈥檛 do in practice what you鈥檝e signed up to?鈥�

Klein says business secretary Vince Cable should write to the UK鈥檚 100 largest private clients asking them to comply with the charter, and take steps to ensure it is enforced. He says that being a signatory of the charter should be required for pre-qualification on government contracts, and a penalty system should be put in place to police its use once contracts have been signed, with those found in breach who fail to improve their performance rendered unable to tender for further public work for two years. Without these kinds of measures, Klein says the assumption the CLC will be able to drive take-up is 鈥渇anciful鈥�. Dortech鈥檚 Sutherland, likewise, says the government will have to use its own procurement muscle to enforce the charter if it is to have any chance of success. 鈥淭he government should reward and recognise those that perform, and isolate those that don鈥檛,鈥� he says.

Certainly any initiative in this area will have to overcome a natural reluctance from clients and contractors to loosen their control of cash. Tony Williams, chair of analyst 好色先生TV Value, says: 鈥淚t is a noble idea, but without legislation, is it workable? If I was a contractor I鈥檇 probably say that no-one鈥檚 going to tell me how to run my business. The fear is people will pay lip service to this, but then just ignore it.鈥�

For it to be a success, undoubtedly the reality of these ingrained practices will have to be tackled, and simply publishing the document will not be enough to make it happen.