UK: B&ES chief executive Rod Pettigrew has welcomed the government pledge unveiled in the Queen’s speech to speed up cash flow for construction supply chains.
New payment legislation, unveiled as part of the proposed Small Business, Enterprise and Employment Bill will include the enforcement of 30-day payment terms on main contractors and the abolition payment retentions by 2025.
“The situation for many small and medium sized contractors in the building engineering services sector is close to critical with a third facing possible insolvency because of cash flow problems,” Rod Pettigrew writes in his blog on the B&ES website.
“£3bn worth of contractors’ money is withheld from them every year with no security and no certainty of it ever being released. As I’ve said before, this is little better than theft,” he adds.
He describes the system of retentions, which have been in place in the UK for 150 years, as “positively antediluvian”.
“In many other countries, retention money is held in trust so there is no financial benefit to the main contractor if he hangs onto the money.
“The biggest threat to our sector is no longer shortage of work, but shortage of cash. Lack of capitalisation and cash flow within the building engineering services industry could stall many crucial projects on the starting grid and derail the government’s infrastructure projects. At the very least, it holds things up and undermines quality because too many members of the supply chain are tied up chasing money when they should be investing in skills, technologies and delivering projects.
Rod Pettigrew acknowledges that previous governments have recognised the importance of this issue. Sir Michael Latham first flagged it up 20 years ago and there have been 19 commitments to improving payment since 2006.
“Sadly, none really made a huge difference largely because they were not backed up by sufficient penalties for offenders,” laments Pettigrew.
“Hopefully, the new measures announced for the coming parliament will have more teeth and there will be greater political will to make them stick.
“The government has promised that, by 2025, this industry will no longer “be defined by its problems with payment”. That promise will only come true if the solutions our industry has developed to solve the cash flow curse are supported, bolstered and properly enforced.”