{"id":71481,"date":"2020-02-10T10:00:04","date_gmt":"2020-02-10T10:00:04","guid":{"rendered":"https:\/\/www.pbctoday.co.uk\/news\/?p=71481"},"modified":"2020-02-10T10:00:04","modified_gmt":"2020-02-10T10:00:04","slug":"late-payments-in-construction-2","status":"publish","type":"post","link":"https:\/\/www.pbctoday.co.uk\/news\/planning-construction-news\/late-payments-in-construction-2\/71481\/","title":{"rendered":"Government action on late payments in construction \u2018insufficient\u2019, says AAT"},"content":{"rendered":"

As the issue of late payment continues to overshadow the construction industry, Phil Hall, head of public affairs & public policy at the Association of Accounting Technicians<\/a> (AAT), says maximum payment terms must be shortened and a clear, simple financial penalty regime for persistent late payers is essential<\/h2>\n

Almost a quarter of insolvencies in the UK are caused by late payment issues. The construction industry is no exception, in fact, it probably has more than its fair share of payment-related collapses<\/a>.<\/p>\n

Carillion may be the most notable builder to fold and owe millions to suppliers but there are countless more, from Lakesmere and Omnis Construction to AN Egremenont and Helm Construction.<\/p>\n

Collapse is not the only problem. Even for those that manage to absorb late payments, or in some cases non-payment, damage to these organisations\u2019 investment, growth and productivity are likely. Furthermore, in many cases, late payment can have a real impact on the mental health<\/a> of both business owners and sometimes other members of staff.<\/p>\n

Large construction firms often set a poor example. Laing O\u2019Rourke was removed from the voluntary Prompt Payment Code in 2019, although they were subsequently readmitted after some much-needed improvements. Likewise, Balfour Beatty was removed from the code<\/a> last year, followed a few months later by Kier, who was removed<\/a> in November 2019.<\/p>\n

It is fair to say that late payment affects the whole economy but its impact in the construction sector is particularly pronounced.<\/p>\n

So, there is broad agreement on the cause, problems and consequences of late payments for individuals, employers and the economy and there has been for some time. However, agreement on an effective solution remains elusive.<\/p>\n

The Prompt Payment Code<\/h3>\n

The voluntary Prompt Payment Code was introduced in 2012 and hailed as a potential solution by many, including the construction sector. This voluntary code requires large companies to pay their suppliers within a maximum of 60 days \u2013 hardly a challenge for most businesses in the 21st<\/sup> Century, not least given statistics from the Department for Business, Energy & Industrial Strategy (BEIS) show that most companies (53%) pay their suppliers within 30 days.<\/p>\n

Despite the less than challenging nature of the Code, only 2,500 companies have signed it. There is little enforcement and no financial penalties are imposed for a failure to comply. It took 7 years before the first company was removed from the Code for persistently failing to pay within 60 days.<\/p>\n

Given the weak performance of the Code, rather than beef it up as seems the most obvious and straightforward option, in 2017 Government instead decided to require companies to report on their payment practices on a half-yearly basis. This may provide some useful data for policymakers or the most diligent of small businesses that check who they are dealing with, but it has no discernible value in terms of changing behaviour. There is a legal obligation to report the data but no legal action if that data is terrible. Companies freely admit to having very lengthy payment terms but don\u2019t have to do anything about them. For example, according to the public register, Hitachi Construction Machinery UK has standard payment terms of 135 days, Topps Tiles 120 days, Tata Steel 180 days and Brinton Carpets 180 days.<\/p>\n

Small Business Commissioner<\/h3>\n

Following on from this, as 2017 ended, the \u201cSmall Business Commissioner<\/a>\u201d post was created. This was supposed to be based on the Australian Small Business Commissioner model i.e. a Commissioner with teeth to impose fines. Instead, our Commissioner has no powers to impose fines and is widely regarded as toothless. With no real powers and a very limited budget, the Commissioner has done a good job in recovering a few million pounds in late payments for small business. However, when you consider the multi-billion-pound scale of the problem, it\u2019s less than a drop in the ocean.<\/p>\n

AAT campaigns for change<\/h3>\n

The past decade has been characterised by a series of initiatives, legislative tweaks, voluntarism and reliance on big employers to do the right thing, all of which have failed to address the problem of late payments either in the construction industry or the wider economy.<\/p>\n

That\u2019s why the Association of Accounting Technicians (AAT) has been campaigning for change. AAT has a strong interest in improving matters because 60% of its 140,000 members either work for or run their own SME and its 4,250 licensed accountants provide tax and accountancy services to more than 400,000 British SMEs. It\u2019s a big issue for AAT members and an even bigger issue for their clients.<\/p>\n

In 2018 AAT made three key recommendations to BEIS that should resolve the problem. These are:<\/h4>\n