Late Payments Still Plague the UK Construction Industry

Late Payments Still Plague the UK Construction Industry

03rd August 2017

The construction industry here in the UK lays the foundations for the country’s overall prosperity, building the infrastructure and housing that Britain needs and creating millions of jobs across the country.   Construction accounts for 6.7% of our economy, contributing almost £90 billion and comprising more than 280,000 businesses, with the construction contracting sector one of the largest in Europe when measured by employment, number of enterprises and gross value added.  Furthermore, the construction industry has a large supply chain, almost all of which is sourced within the UK, strengthening our economy even further.  The Department for Business Innovation and Skills suggests that 99.9% of UK construction contracting businesses are SMEs.  SME are divided into three categories:  

·         SMEs are defined as enterprises which employ fewer than 250 persons and with an annual turnover not exceeding €50 million.  

·         Small enterprises are those which employ fewer than 50 people with an annual turnover not exceeding €10 million.

·         Microenterprises employ fewer than 10 people and have an annual turnover that does not exceed €2 million.

Small businesses rely heavily on a steady cash flow to stay in business but late payment is an issue that plagues the construction industry and is an endemic feature of the sector.   Construction News conducted a cross-industry survey in 2016, canvassing 600 respondents in order to produce a snapshot of the state of the industry when it comes to late payment.  With an extremely broad range of payment terms, the first question asked covered the issue of how many days’ wait was typical.  While 60% of those surveyed (on both the supply and receipts side) reported that payment terms fell within 39 days, the incidence of 60-plus day terms was lower than expected. 

The survey revealed that 13% of respondents who identified as clients, main contractors or subcontractors presented suppliers with 60-plus day terms while 16% received terms from clients of 60 days or more.  However, only 50% of payers surveyed across all tiers of the industry were able to confirm that payments are made within these timescales.  When it comes to payees, only 29% receive more than 75% of payments in accordance with the agreement which clearly demonstrates that the industry does not do what it says it’s going to do and then doesn’t actually do what it thinks it does!

Clients typically claim to play by the book but when the payment terms that main contractors and subcontractors sign up to are compared, things become even more interesting.  About 30% of main contractors surveyed work to typical payment periods in excess of 40 days, while more than 50% of subcontractors sign up to longer periods with a high proportion of those reporting that payments made to them are delayed.  Worryingly, a quarter of main contractors and a fifth of subcontractors revealed that contractual disagreements are a barrier to prompt payment.

The survey revealed that legislation is the preferred solution to improving prompt payment within the industry and the amendments to the 1996 Construction Act made in 2011 were designed to tighten up payment legislation and bring about an improved cash flow within the industry