A Parliamentary All Party Inquiry is urging the government to implement a Construction Code of Conduct with an independent adjudicator to tackle late payments.
The proposed system would share features with a new Groceries Supply Code aimed at stamping out payment abuse by supermarkets.
The new Groceries Code Adjudicator, who was given statutory powers by an Act of Parliament last month, can receive confidential complaints and evidence about how large supermarket retailers are treating their direct suppliers.
If the adjudicator finds there has been a breach of the Groceries Supply Code, she can require retailers to publish details of their breach and impose fines in the most serious cases.
The inquiry’s other recommendations include:
- Contractually agreed payments, including retentions, should be held in an independent trust.
- The government should require all new government contracts to include prequalification questions on past payment performance, and should consider the payment history as part of the bidding process.
- The government should make fair payment a contractual requirement for new government contracts, with Tier 1 contractors paid within 14 days, Tier 2 within 19 days and Tier 3 within 23 days.
- The government should support SME organisations or trade associations to act on behalf of suppliers seeking recompense through the new EU Directive on Late Payments (2011/7/EU), which came into effect in the UK in March 2013. This requires business-business invoices to be paid in 60 days and public authority-business invoices in 30 days, with debtors forced to pay interest with and an administration fee if they fail to do so.
Although the food sector opposed giving the independent adjudicator the power to levy fines, the government insisted the code must be backed by financial penalties, though the scale of fines has yet to be established.
The MPs’ inquiry was convened by Debbie Abrahams MP, whose Be Fair – Pay on Time campaign has persuaded 25 FTSE100 companies to sign the Institute of Credit Management’s Prompt Payment Code.
Abrahams says urgent action is required to address late payments in the construction sector, which is claimed to be a more significant problem for construction than any other sector in Britain bar manufacturing.
The inquiry’s proposals have received backing from the Specialist Engineering Contractors’ (SEC) Group and the Federation of Small Businesses.
Rudi Klein, group chief executive of the SEC, welcomed the inquiry’s recommendations, but warned they did not go far enough.
“This [Code] will not help eradicate the problem of late payment unless the entire public sector, such as police and local authorities, and not just central government, signs up to the Code,” said Klein. “Nor will it work unless the private sector also comes on board.”
Klein said the government should summon the top 100 private sector buyers of construction services and urge them to commit to the Code.
He also called for a red and yellow card system for contractors working in the public sector that pay late – with one failure to pay on time leading to a warning and a second failure prompting a two-year ban from all public sector work.
