Exclusive: A move by housebuilder Keepmoat to extend its standard payment terms by almost half has sparked a warning that main contractors risk serious disruption to their supply chains.
Keepmoat has lengthened its payment terms across its supply chain, with one subcontractor saying its term has grown from 35 to 49 days, and may even be extended to 60 days.
The move to delay payment by two weeks prompted the chief executive of the National Specialist Contractors Council to warn that contractors delaying payment “will ultimately destroy the subcontractors they rely on”, while a government spokesman cautioned that “small companies waste time and incur costs when they have to run around chasing payments”.
Keepmoat declined to answer concerns that smaller firms subjected to longer payment delays face losing out on projects.
An angry subcontractor told CN it was “being squeezed from both ends” by Keepmoat’s change of terms.
“We are under so much pressure now from the suppliers you would not believe,” said the source. “Our suppliers want paying in 30 days.”
“The only way you will get anything different is if you offer a discount,” added the source. “How’s that going to work? We’re working on peanuts; we’re working at cost.”
Keepmoat group commercial director John Thirlwall told CN: “We always aim to match our subcontractor payment terms and client payment terms through staged and single payments.
“However, we are mindful that where payments are predominately for labour, these have to be managed appropriately.
“To date, we have not experienced any adverse reaction from our suppliers. We continue our ethos of being a partnering organisation which works closely with our supply chain and which develops excellent working relationships, particularly in these challenging financial times for our industry.”
The extension of payment terms follows Keepmoat’s merger with Apollo in March to become a £1 billion new-build, refurbishment and R&M social housing firm. Keepmoat subsequently restructured, leading to the loss of 200 jobs.
The Fair Payment Campaign launched by the NSCC five years ago led to a requirement for payment within 30 days on government projects. NSCC chief executive Suzannah Nichol told CN that contractors delaying payment for “no legitimate reason” will “ultimately destroy the subcontractors they rely on.”
“Times are tough for everyone, but there is no excuse for starving your supply chain of cash,” she added.
Ms Nichol said a solution for “any reputable client” is to look to pay direct or via a project bank account, and carefully select the contractors they choose to manage their projects in the future.
Specialist Engineering ContractorsGroup chief executive Rudi Klein said the sort of action taken by Keepmoat in extending its payment terms “gives further impetus” to the case for project bank accounts: ring-fenced electronic accounts that clients can use to pay the supply chain directly and simultaneously.
A spokesperson for the Cabinet Office told CN that the issue of prompt payment is taken “very seriously” by the government.
“The fact is that small companies waste time and incur costs when they have to run around chasing payments,” she said. The introduction of project bank accounts will “support small businesses by ensuring that construction SMEs working in government projects receive payment in five days or less from the due date”, she added.
“We are working with industry every step of the way and will continue to use our buying power as the industry’s biggest client to insist on change, including the better treatment of the supply chain.”
ISG recently scrapped a fee it had imposed on firms to register for its supply chain following a CN investigation in May, while Willmott Dixon has come under fire for charging a management fee on its preferred suppliers.
Carillion has faced criticism for the length of time it takes to pay some subcontractors, but its chief executive Richard Howson told CN that he does not see a need to shorten their payment periods.