The Carillion collapse has illustrated the lack of payment security in the UK construction industry and the devastating impact on small firms up and down the country. Leading trade association, the Specialist Engineering Contractors’ Group (SEC Group), is calling on Parliament to take steps to finally tackle bad payment practices in the construction industry.
As estimates of supply chain losses keep going up industry commentators have said that some of these losses could have been avoided if measures had been in place to provide security of payment to Carillion’s supply chain.
Professor Rudi Klein, chief executive at SEC Group, said: “If all payments to the supply chain had been routed through a project bank account (PBA), rather than through Carillion’s accounts, firms would have received their monies. Highways England already do this for their projects.
“Moreover there would have been less disruption to the progress of works on public sector projects. Furthermore millions of pounds of retention monies have been lost. These were monies withheld – ostensibly as security in case of defects – to bolster Carillion’s working capital.
“For example, on contracts with the Defence Infrastructure Organisation (DIO) Carillion was taking retentions from its supply chain although the DIO was not asking Carillion for retentions.”
SEC Group is calling on Parliament to insist that the Government supports the Construction (Retention Deposit Schemes) Bill (“the Aldous Bill”) which had its First Reading on 9 January 2018; and SEC Group invites the Government to legislate to require that PBAs are put in place for all construction works over £1 million.
PBAs are currently mandated for public projects over £4m in Scotland, over £2m Northern Ireland and Wales (the latter since 1/1/2018). However, there is no mandate in England, only a ‘strong recommendation’.
Professor Klein is also inviting the Government to issue strong guidance to all public sector procurers to operate a yellow/red card system: if lead contractors do not pay their supply chains within 30 days (as already required under the Public Contracts Regulations 2015) they should be barred from bidding for public sector works for a period of at least two years (this already applies in Northern Ireland).