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Building a Better Future for the Construction Industry

The Construction Alliance blog
Monday, 12 May 2014

An Industry Payment Charter

One of the first issues that the Construction Leadership Council has addressed is late payment within our industry.  The reason for its priority is because correcting the culture of late payment is seen by the Council as crucial if we are to succeed in creating the world class industry envisaged in Construction 2025.

The reasons why this is crucial include:
  • Collaboration throughout the supply chain is less likely to happen where payment is late or uncertain.  Without secure payment business will stop and the rationale behind securing our futures is ignored in favour of survival today.
  • An improving market requires cash to support increased levels of working capital, investment in staff, plant and corporate infrastructure.  Trading in a time of great change requires organisations to be nimble and opportunistic.  Both become increasingly difficult when payment is delayed.
  • Trading in improving markets can be a dangerous time to be contracted to an organisation with depleted cash resources.  Long payment terms will inevitably mean that the size of debts owing when a company goes in to receivership will be significantly greater than where payment terms are shorter.  (A doubling of terms from one month to two could double the size of debt owing.)  This means that a company going down is likely to drag many more with it as the individual size of debts owed to companies will be significantly greater.

The Council has therefore endorsed a Charter that promotes good practice and, through wide dissemination, aims to start changing the culture of late payment within our industry.  The Charter sets basic parameters, starting with fairness and openness, and includes some relatively easy targets to be achieved in terms of payment arrangements.  However, organisations should be under no illusions that these are the minimum terms and that best practice is better than this.  Companies are already using zero retentions and faster payments to attract the right supply chain partners, which may force the general pace of change.

The Council wished to promote a Charter that most organisations in the industry could sign up to, recognising the financial pressures that many companies are under.  They also wanted to encourage the openness that measurement and benchmarking can provide, as this is a significant mechanism to promote fair payment.  Public clients could then use these metrics to select appropriate suppliers under the new OJEU procurement regulations which are due out over the next twelve months.

Three messages should be clear to all companies within the construction industry.  One: Treat your supply chain fairly and pay them as fast as you can.  This should ensure that you get the best from your suppliers, which will enable you to provide the best possible service.  Two:  Beware of clients who take time to pay or do not treat you fairly.  Ask yourself why they need extra time to pay and what happens if they can’t?  Three:  Sign up to the Construction Payment Charter to demonstrate your commitment to your customers and suppliers.  Ask your clients to and suppliers to do likewise.

- Mark Wakeford, Construction Alliance Chair

posted by The Construction Alliance : 14:53


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