FPDC is moving forward, and the work of previous years has given us a strong foundation. In the teeth of some of the toughest market conditions our industry has seen, we must bolster our position quite dramatically.
The dynamics of the market have to change for our supply chain to survive. Our subcontracting sector is dominated by SMEs – small businesses who see an opportunity, are prepared to take a risk, work hard and earn a fair reward. Addressing the pincer movement of main contractors not paying, with material prices being pushed up annually, is the twin challenge we as a Federation face.
Last month a leading international bank (Barclays) reported that UK SMEs are owed £36bn in late payments. Minimising late payments and effectively managing cash flow is crucial for our survival. With one in five businesses that cease trading citing bad debt as the reason, it is vital that we tackle this problem and take more action before it is too late.
Not all businesses are in a position to refuse future custom from late payers. Whilst it goes against all natural business instincts to turn customers away, it is entirely understandable to make that decision when weighed up against the overall impact of late payment on the future of that business. More and more businesses will begin to avoid working with bad payers in the same way they stop using bad suppliers.
As small sub-contracting businesses we have to stop acting as bankers to main contractors and funding unsustainable product price increases. We have to be aware that we will potentially end up damaging the sector that we all depend on. There are only limited companies out there with the finances and expertise to manage the resourcing and financial risk of often highly detailed packages that can survive. Start-ups or phoenix businesses that are here today and gone tomorrow do nobody any favours.
Without fair payment practices being adhered to for all the supply chain, including our members, it will be a struggle to sustain this and other specialist sectors in construction. We are not in a position to bankroll the industry and finance contracts from the bottom up. At the base of the food chain, which we very much are in construction, we are seeing all sorts of tactics being employed to prevent being paid on time – from the outright blunt route of 65 to 90 day payment terms in sub contracts, to main contractors changing a QS just as your final account is to be settled, or the accounts department taking a further 2 weeks to have a payment sanctioned and some companies simply having 10 payment runs in a year rather than the standard 12, irrespective of what your sub contract may say.
Are these practices illegal…possibly, are these practices fair – certainly not. What it does mean is that many businesses are unsustainable and jobs and skills are lost to an industry that will need them in the coming decades. Solutions proffered by government and large contractors are reverse factoring schemes that see money flow as it should, but once again, at a considerable cost to the small sub-contractor businesses. This simply eats into a margin that is not there.
If SMEs’ existence is the lifeblood of the economy, then people in high places actually need to take some time to consider the reality. Project bank accounts and fixed payment terms are one way forward, but those above us need to be aware of their responsibilities and should they fail to act responsibly and flout the law then they must be forced to change with the full force of legislation, for the good of construction and the economy as a whole.