Firms hit by late public sector payments

UK: Nearly two-thirds of engineering services firms are not being paid within 30 days by public sector bodies – a contravention of government legislation.

A new survey covering the second quarter of this year by the Building Engineering Services Association (BESA) and electrical contracting bodies ECA and SELECT has found that 63% of firms were not paid within 30 days by public sector bodies.

The figures represent a decline in prompt payment performance on the first quarter of the year, when 55% of businesses were not paid within 30 days by the public sector. In many cases, this directly contravenes the government’s Public Contracts Regulations.

Retentions remain a problem. The survey revealed that 39% of companies had over 3% of their turnover tied up in retentions by firms up the supply chain.

At any one time, some £3bn of cash retentions are thought to be held by large companies and public bodies from construction SMEs. Research from SEC Group has found that 80% of public sector bodies apply cash retentions on their supply chain. The typical amount of cash retentions deducted by public bodies from the project value is 5% and some £40m is said to be lost each year by small firms due to upstream insolvencies. 

Strong outlook

Despite the challenging payment climate, turnover among respondents remained strong, with 81% finding turnover increased or stayed the same in Q2, compared to Q1. Looking ahead to Q3, 87% of businesses expect turnover to rise, or remain steady.

“Despite the political turmoil created by Brexit, it is good to see that our sector remains stable and that contractors are reasonably optimistic about the future,” commented BESA chief executive Paul McLaughlin.

“Rising costs and extended payment periods continue to create challenges, but the fact that some building engineering firms have improved their profit margins is testament to their ability to manage risk.”