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26th May 2017
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Subbies continue to finance the multi-million pound players
Specialist contractors are propping up the UK's cash strapped construction industry and financing growth by acting as trade creditors to the large main contractors.
According to StreetwiseSubbie, a professional services organisation founded to support and advise specialist contractors, the financial landscape for UK subbies remains bleak. Not because of lack of work, but because certain main contractors find every way possible to delay payments, and pay less than is owed, simply to free up their own cash flow.
Explains Barry Ashmore, co-founder of StreetwiseSubbie and former electrical contractor turned professional construction law expert: "By paying less than is owed and withholding payment for up to 120 days in some cases, some of the UK construction industry's main contractors are using the money they owe subcontractors to finance their own business growth - it's just plain wrong.
"Not only is this practice unfair and unjust, it is destroying the heart of the industry and literally biting off the hand that feeds it! As a direct result of late and withheld payments, six construction firms are going bust every day*.
"That is scandalous and the pathetic attempts to fix the problem such as the Construction Leadership Council's voluntary agreement where signatories agree to pay all suppliers within 30 days from 2018 amounts to putting a sticking plaster on a gaping wound.
"Specialist Contractors are consistently told: "Accept our onerous terms or you don't get the work". Accept crippling payment terms or lose out on the business? That's what I call a real rock and hard place. Our subbies have nowhere else to go and no other choice but accede; it's a disgrace."
"The evidence is clear and it's not just the team here at StreetwiseSubbie that is concerned. BIS Research Paper Number 118 ' Trade Credit to the UK Construction Industry: An Empirical Analysis of Construction Contractor Financial Positioning and Performance' from July 2013 stated as one of its conclusions: "Tier 1 firms (main contractors) were found to be net receivers of trade credit, whereas Tier 2 firms (subcontractors) were found to be large net providers of trade credit".
Barry says that in other words, it is highly likely that trade credit flow from Tier 2 to Tier 1 contractors substantially exceeds in size the trade credit flow from suppliers outside the construction industry to Tier 2 contractors.
"Furthermore, in the last few days, the SME Confidence Tracker Report from Bibby Financial Services revealed that the number of SMEs suffering from late payment rose by nine percentage points in the second quarter of 2015 against the same period in 2014," he says. "As a result, 51% of SMEs are waiting more than 30 days for payment.
"And, guess what? The construction industry remains the worst culprit with 55% of smaller firms waiting over 30 days to be paid, up 11 percentage points against the same period last year.
"We're going backwards in this country and the government and so called industry leaders know what is going on but either don't care, or are too mired in self-interest to do anything about it. Talking about 'working towards' paying in 30 days by 2018 is an insult which is exposed by the following clause taken from a standard sub-contract form in widespread use in 1971...
"The first payment shall be due no later than one month after the date of commencement of the sub-contract works or if so agreed of off-site works related thereto and further interim payments shall be due at intervals not exceeding one month calculate from the date of the first interim payment. Interim payments shall be made not later than 14 days after the date they become due."**
"If we could agree to pay within 14 days 44 years ago, why can't we pay within 30 days today? Take the Specialist Contractor's money out of the UK construction industry and it would be on its knees within a matter of days. Fact."
StreetwiseSubbie provides a complete package of contractual, commercial, sales and marketing support services to specialist contractors on a nationwide basis, which are available in various grades of membership.
* Office of National Statistics' figures; in the 12 months ending Q4 2014, the highest number of liquidations was in the construction sector at 2,317, with 578 compulsory liquidations and 1,739 creditors' voluntary liquidations.
** Form published by BEC Publications - 1971edition, revised July 1978. Form approved by: The Building Employers Confederation, The Federation of Associations of Specialists and Sub-Contractors and The Committee of Associations of Specialist Engineering Contractors.
T: 01773 712116
4th September 2015