So why is this happening? According to CN100, the UK’s top 10 contractors shared a combined turnover of £32bn while managing to turn in a pre-tax loss of £52.9m. With too many problem jobs and low industry margins leading to losses like this, main contractors are desperate to hold onto their sub-contractors’ cash.
And while not condoning late payment in any shape or form, it’s no surprise that payments to sub-contractors are disturbingly slow. I actually believe that government reporting on late payment, is fundamentally flawed as when there are variations to the contract, as there invariably are, getting a reasonable valuation agreed for such extra work can take months. This means that any resulting payment, even if made months after the work is done, isn’t “late” until it is certified by the contractor as due and the contractual final date for payment has passed. It’s a bit like an iceberg – difficult to see and outside the reporting mechanisms – for the time being. Other contractors offer reverse factoring schemes, which I believe pose a huge risk to the industry as they’re complicated, costly and largely unregulated.
It’s SMEs that are bearing the brunt of the main contractor losses with 15% of their turnover tied up in late payments. Crossflows’ recent survey put this number for the sector at an estimated £22.6bn. That’s an enormous amount that could be used to invest in new plant and equipment, hire new staff and apprentices, and even deliver much needed R&D which would drive innovation and cost saving, something our customers are pressing us to do.
I can’t believe that Whitehall is saying contractors are making too much money and Lord Adonis has dismissed fears over low margins. Something has to give, and at the moment sub-contractors are the losers.
The industry needs to change and I’m pleased to see that CN is picking up the issue. Maybe times are changing; or have we heard it all before?
BCSA President & Sales Director Cleveland Bridge