The new Supply Chain Charter, due to be launched by the government-industry Construction Leadership Council next month, is setting out to change the late payment practices in the industry, but with specific construction law already in place, and often ignored, how effective can it be? Also is it missing the point? Do we need to delve a little deeper to understand why late payment practices exist in the first place – because if it is a business model that the clients are forcing main contractors to resort to in order to drive a profit, how would the Supply Chain Charter address this?
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When we first set out to try and change the way people were treated in industry we did it by sitting down and looking at how previous initiatives, both inside the sector and outside of it, had attempted to do the same thing. We found there to be a common theme in that quite often the focus was only on the generic things that individual companies or organisations would need to do. The actual realities of how this affects the sector or if it would be taken up and enforced, were often missing.
So let’s imagine the responses to the question: What should be done about late payment?
We strongly believe that by focusing this Supply Chain Charter at main contractors we will only paper over the cracks; clients are an important part of the reasons that late payment terms exist and we need to start seeing them as part of this picture. By clients, contractors and government working together the industry can move forward but it needs more than a charter, we would suggest that it needs the CITB Be Fair Framework.
Chrissi McCarthy MCIOB is managing director of consultancy Constructing Equality. It is currently working with the CITB to develop and implement the Be Fair Framework, a new accreditation standard for construction companies that want to demonstrate fair and equal treatment for all staff, job applicants and subcontractors bidding for work. For more information see here.
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Having worked for main contractors and subcontractors extensively it is very clear to me that most main contractors will do whatever they can [to get away with] to delay and reduce payments to their subcontractors. This includes actions totally removed from the build process when they impose ‘money market’ / financial penalties. It’s as if they live in another world. There is often little regard for fair terms and fair application of terms which is sometimes reflected in the way consultants [on behalf of their clients] deal with main contractors. Many across the board ignore the ‘rules of the game’ and ride roughshod over others. It’s time for some honesty and integrity in the business world!
In the Middle East it is not unusual to see contract clauses requiring main contractors to provide proof that they have paid their workers. This is normally in the form of a statutory undertaking, which must be submitted with the monthly invoice. No signed undertaking, no payment.
It seems to me that a similar mechanism could be put in place to ensure main contractors have made agreed and on time payments to the supply chain. On persistent abuse by main contractors, clients should have the right to pay tier 2 and tier 3 suppliers directly. This would surely focus minds, and would be far more effective than a charter or procurement initiative, which would both have a lag before having the desired effect; assuming of course that main contractors didn’t find creative ways around it.