The Specialist Engineering Contractors’ (SEC) Group – which represents SMEs in the construction engineering sector – has warned that current cashflow crisis in construction is unsustainable.
Given the problems of late and lengthy payment periods and lack of access to reasonably priced lines of credit, SMEs are relying more and more on their directors for funding. Directors lent their construction businesses £38 million in 2015/16; in 2013/4 it was £29.7 million (source: Funding Options).
SEC Group chief executive, Professor Rudi Klein, said that these figures were extremely worrying: “With SMEs now relying more and more on their directors for their liquidity the cashflow position in the industry is now critical.”
This is against the background of the poor state of the balance sheets of the UK’s largest construction firms recently highlighted by the debt-ridden problems faced by Carillion (the second largest construction company).
Professor Klein added: “These companies are taking longer and longer to pay their supply chains with SMEs having to spend the bulk of their contract values up front before receiving any payment.”
SEC Group is pressing the Government to introduce legislation to:
- mandate the use of project bank accounts across the whole of public sector construction;
- ring-fence cash retentions, and
- mandate 30 day payments.