Construction sector warned to expect growth in insolvencies

The Specialist Engineering Contractors’ Group (SEC) has suggested 2019 will be blighted by more insolvencies than in the previous year, and are set to top the 3000 mark. In a report by Construction News they are urging Government to deal with “payment abuse and malpractice” and to resolve late payment issues.

The impact of late payment will see many SMEs in vertical supply chains hit most, with payment terms of 60 days not uncommon, extensions beyond this often in contract terms, and abuse of those terms prevalent. The SEC has drawn up four action points it thinks will help to prevent a cycle of late payments.

• Mandating 30-day payment terms on all public sector contracts

• Legislating for the use of project bank accounts

• Cash retentions to be protected in a secure account

• Penalties to be imposed on serial late payers

However at this stage the SEC was only able to petition General Election candidates and the action points are little more than a wishlist.

Similarly the Government’s Construction 2025 proposals are some years off but also highlight many issues with payment and how they affect the construction supply chain. The liquidation of Carillion in 2018 was a disaster for many of its suppliers and, until action is taken at the highest level, SMEs in the sector remain vulnerable from further collapses.

Already in 2019 several ‘blue chip’ firms have been suspended from the Prompt Payment Code, but the SEC said there are no penalties for late payment and that the code was “as useful as a chocolate-coated hot water bottle”.

While new rules on payment standards in public sector contracts came into force in September 2019 – where contractors cannot tender for public sector contracts if payment within 60 days drops below 75 per cent – this does not address private sector contracts.

Indeed, we at The Channel Partnership are hearing about worsening payments on private contracts as cash has to be diverted to pay promptly on public sector contracts. Indeed, all of these improved payment practice suggestions need cash to fulfil them and cash, unfortunately, is in limited supply.

Trade credit insurance is one of the few options Construction sector SMEs have to protect their debts, and to feel confident that contracts – even with seemingly gilt-edged businesses – will ultimately be paid.