The Construction industry foundations have been rocked, and late payment is a major threat to the industry, especially to small firms that make up the bulk of the industry.
It is well documented that the UK Construction Industry has been severely affected by economical turmoil in the UK and publicly funded construction continues to be the worst-affected sector. Business failure remains extremely high within the construction industry and late payment issues have given the industry the tag of ‘High Risk’ due to the business failure rate.
The failure of SMEs is particularly high as their specialist work is carried out on behalf of large contractors. The large contractors have been heavily criticised following recent reports which suggest squeezing sub-contractors over payment terms is a very common practice and as a company Amril deal with a lot of cases of late payment that have caused significant issues for the sub-contractor.
It is very easy for a main contractor to halt payment over disagreements relating to charges or (sometimes) spurious disputes over the sub-contractors work.
There is a real issue of power which is mismatched between the main contractor and its sub-contractor – it is apparent that the relationship between contractor and sub-contractor is on the likes of Master and Slave.
All too often I hear stories of sub-contractors waiting for the payment certificate to be released only to be told there is an issue with the work or there has been a dispute and the buyer has halted payment. The main contractor then informs the sub-contractor that they cannot pay them until the buyer pays, and this often occurs even though the sub-contractor has done the work to the agreed standards. It then becomes a standoff as the sub-contractor will halt work until payment has been released due to their commitments to their own staff and sub-contractors, or a subcontractor could have invested heavily to get the contract and they are in the middle or near the end of the contract making it virtually impossible for the sub-contractor to pull out without losing money, it can be a neverending vicious circle.
In the end this will have a detrimental impact on larger firms as word of mouth spreads that a main contractor cannot be relied upon to pay their ‘subbies’ on time. Out of 1000s of construction companies only 139 have signed up to the Prompt Payment Code: http://www.promptpaymentcode.org.uk
Amril – Debt Recovery and Credit Management Specialists support the construction industry. Contact Amril if you are having difficulties with late payment.
