REUTERS | Sean Yong

“There is nothing quite as wonderful as money, there is nothing quite as beautiful as cash”

In December 2008, at a “prompt payment summit”, the Business Secretary, Lord Mandelson, launched a new Code of Practice aimed at increasing the speed of payments to small companies (SMEs). This summit followed an earlier Government commitment to pay its suppliers within 10 days.

The Code focuses on three main areas:

  • a commitment to pay suppliers on time, within the payment terms agreed and without trying to retrospectively change those terms;
  • giving clear guidance to suppliers on payment procedures, including advising if an invoice will not be paid; and
  • encouraging good practice throughout the supplier’s own supply chain.

The Olympic Delivery Authority (ODA) has followed the Government’s lead and has also announced it will pay suppliers promptly. Just before Christmas, the Times reported that the ODA will pay undisputed invoices within 18 days.

Despite these Government-backed initiatives, it seems all is not well in the construction industry and some sub-contractors are having to wait as long as 120 days for payment (see news article).

And, in practice, what is really happening?

  • Are payment periods being shortened or are companies and the Government simply paying “lip service” to these pledges?
  • If these changes have been put in place, how has this been achieved and what impact does it have on the statutory payment/withholding notice provisions?
  • What does “undisputed” mean? Is that a sting in the tail?

We would be interested to hear your experiences.

10 thoughts on ““There is nothing quite as wonderful as money, there is nothing quite as beautiful as cash”

  1. Earlier this week we wrote about the Government’s pledge to keep cash flowing by reducing payment periods to small companies. Today Construction News has reported that some sub-contractors are being asked to cut costs on all current orders by 20%. This does not bode well for the future of the construction industry. Let’s hope this is an isolated request by one contractor, and not a sign of things to come this year.

  2. Earlier this week we wrote about the Government’s pledge to keep cash flowing by reducing payment periods to small companies. Today Construction News has reported that some sub-contractors are being asked to cut costs on all current orders by 20%. This does not bode well for the future of the construction industry. Let’s hope this is an isolated request by one contractor, and not a sign of things to come this year.

  3. It seems even professional consultants are not immune to the squeeze on fees. Building reported today that Tesco has written to its quantity surveying consultants, seeking between a 20% and 50% fee reduction, depending on the type of work involved. The reduction was justified by a Tesco spokesman as follows: “Unlike many developers, Tesco will continue its growth and offer continuity for the [retail] trade”.

    It begs the question, who will be next?

  4. It seems even professional consultants are not immune to the squeeze on fees. Building reported today that Tesco has written to its quantity surveying consultants, seeking between a 20% and 50% fee reduction, depending on the type of work involved. The reduction was justified by a Tesco spokesman as follows: “Unlike many developers, Tesco will continue its growth and offer continuity for the [retail] trade”.

    It begs the question, who will be next?

  5. While the construction industry has been hit by the economic downturn, there are several ways in which individual organisations can protect their finances. One of these is by complying with their legal requirements and avoiding unnecessary penalties and fines. A stark reminder of this comes with publication of the November 2008 minutes of HMRC’s Construction Industry Scheme Operational Forum. The minutes show that:

    – A total of 136,893 contractors (roughly three quarters of the contractor population) has received at least one penalty for failing to comply with the Construction Industry Scheme (CIS).

    – Around £180m worth of penalties has been issued so far (although only £5.25m has been collected).

    In these trying times it is sad that non-compliance with statutory duties is costing the industry so much money. For more information on the CIS and to check your compliance, see our Practice note.

  6. While the construction industry has been hit by the economic downturn, there are several ways in which individual organisations can protect their finances. One of these is by complying with their legal requirements and avoiding unnecessary penalties and fines. A stark reminder of this comes with publication of the November 2008 minutes of HMRC’s Construction Industry Scheme Operational Forum. The minutes show that:

    – A total of 136,893 contractors (roughly three quarters of the contractor population) has received at least one penalty for failing to comply with the Construction Industry Scheme (CIS).

    – Around £180m worth of penalties has been issued so far (although only £5.25m has been collected).

    In these trying times it is sad that non-compliance with statutory duties is costing the industry so much money. For more information on the CIS and to check your compliance, see our Practice note.

  7. Despite all the things that have been written and said about prompt payment, a recent survey by the National Specialist Contractors Council (NSCC) has revealed that 41% of sub-contractors reported payment periods of more than 60 days, with only 1 in 50 sub-contractors being paid within 30 days.

    The Government’s pledge to keep cash flowing by reducing payment periods does not appear to have reached English councils either, with just 60 out of 332, saying they had changed policies or targets to make payments to small firms more quickly.

    For more information, see Construction News.

  8. Despite all the things that have been written and said about prompt payment, a recent survey by the National Specialist Contractors Council (NSCC) has revealed that 41% of sub-contractors reported payment periods of more than 60 days, with only 1 in 50 sub-contractors being paid within 30 days.

    The Government’s pledge to keep cash flowing by reducing payment periods does not appear to have reached English councils either, with just 60 out of 332, saying they had changed policies or targets to make payments to small firms more quickly.

    For more information, see Construction News.

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