SMEs in the construction supply chain in Scotland are still suffering from poor payment performance and the latest initiatives by the Scottish Government, while in the right direction, have not yet had a major impact. Moreover, there is a small variation on payment performance between public sector and private sector. This is the picture emerging from the latest survey of construction engineering firms carried out by the Specialist Engineering Contractors’ (SEC) Group Scotland. Firms also backed the idea of a Construction Regulator to help improve the situation.
During the course of last year, SEC Group Scotland carried out an extensive survey on payment practices as they affected engineering firms in Scottish construction. The overwhelming majority of respondents were SMEs. Firms were asked to indicate whether there were differences in payment performance in both public and private sector construction.
The headline results were as follows:
- Over 60% of public bodies amend the payment provisions in the standard forms of construction contract (this often involves extending the payment cycles). The figure for the private sector was 69%.
- Only 28% of firms reported that they were paid by public bodies within 30 days (for the private sector the figure was 24%).
- Where firms were acting as sub-contractors on public sector works, over 85% reported that they were not being paid within 30 days (76% in the private sector).
- Almost 47% of firms working for public bodies reported that a tenth of their payments were late (10% more than in the private sector). A significant number of firms (19%) reported that at least a third of their payments from public bodies were late.
- Almost half of their payments are made late according to 45% of sub-contractors working in the public sector.
- 90% of firms supported the introduction of a construction regulator with powers to impose penalties on poor payers or (in the case of suppliers) to exclude them from bidding for public sector works.
To help SMEs in the sector, SEC Group Scotland is urging the Scottish Government to:
- Amend the Procurement Reform (Scotland) Act 2014 to require that all public bodies use project bank accounts (PBAs) so that payments to all suppliers are secure. Where PBAs do not apply, public bodies should have a statutory duty to ensure 30 day payments are made to all firms in the supply chain.
- Legislate to protect cash retentions.
- Reduce the cost of adjudication so that SMEs can afford to challenge spurious reasons for withholding payments.
- Legislate to create the role of a construction regulator.