Government criticises main contractors for poor payment practices

Industry experts have pointed out that main contractors, who often subcontract work to others, have been heavily criticised by the Government for failing to uphold good payment practices.

According to many specialists, main contractors in the construction industry are seen as “the villains” and the “suppliers the victims”.

The comments seem to be backed up by the Government’s decision to suspend the likes of Balfour Beatty, Laing O’Rourke and Interserve from the Prompt Payment Code (PPC) in April this year.

The PPC was set up by the government in 2008 and it sets standards for payment practices and best practice. Compliance with the principles of the Code is monitored and enforced by the Prompt Payment Code Compliance Board, which can remove contractors if they fail to meet the standards resulting in them being unable to bid for public sector works.

Back in April, Cabinet Office minister Oliver Dowden gave main contractors an ultimatum telling them to pay 95 per cent of invoices on private sector jobs within 60 days or face being banned from future public sector contracts.

The Government has subsequently dropped the threshold to 75 per cent of invoices in light of the plight of so many small contractors who went unpaid.

The PPC signatories who were suspended in April have now been reinstated and Laing O’Rourke – one of the slowest payers now pays 79 per cent of invoices within 60 days thanks to the actions of Government – this a jump from just 57 per cent in the previous six months.

However, despite complying with the rules, many main contractors are now getting tougher on their clients by suggesting that they are as much to blame for the late payment culture by withholding funds until the last minute due to variations and the length of time they hold on to cash retentions.

In it’s latest set of accounts report, Laing O’Rourke, the country’s largest private contractor takes up a page to elaborate on the difficulties all firms have faced in accessing funding from banks since the last recession, before laying into public sector clients for their continued “traditional approach to payments to tier 1 contractors”.

Experts have suggested that the public sector should lead by example and pay main contractors on time so that subcontractors can also be paid sooner.