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Fat in the system can compensate the cost of re-financing the industry

The Construction Leadership Council has sanctioned a charter to promote fair payment throughout the myriad of organisations involved within a construction project.

Fair payment priority

As the industry emerges from recession, the charter has been a priority for the council.

The treatment of suppliers has been an issue for many years and it has crystallised on payment.

At one level, it could be argued that commercial terms between organisations are not something to concern third parties.

However, the council recognised that suppliers needed to be better capitalised if they were to provide the service construction customers require as work levels improve.

Without this re-capitalisation, the other objectives endorsed by the council within Construction 2025 will struggle to materialise.

Collaboration is more difficult when a larger party exercises power over payment. Suppliers will struggle to invest in people, plant or innovation and organisations with tight finances will continue to be risk-adverse when the industry desperately needs a step change in behaviour and attitude.

The debate within the Construction Alliance, that represents contractors from small to large, was not on the merit of fair payment.

All can see the benefits and opportunities that a collaborative and well-financed supply chain can bring.

Debate focused on contractors’ ability to achieve the payment periods laid out in the charter.

As we come out of recession, the irony is that those larger organisations that could use vendor finance to maintain capacity and possibly lower prices during the depths of the recession are now exposed.

It is these organisations who may find their supply chain deciding to work for clients who pay earlier.

From problem to innovation

While these larger organisations look to find ways around this problem, we may find their solutions drive better performance and innovation.

We see supply chain funding entering the market – those who wish to use it may have to find savings elsewhere to remain competitive.

The Construction Leadership Council is confident there is fat in the system that can compensate the cost of re-financing the industry. They have identified an “achievable” one-third cost saving from the construction processes to deliver and maintain projects.

We have a good environment for innovation if companies who have used vendor finance to ride the recession now need to find savings elsewhere to stay competitive.

If those companies looking to change their business model recognise that innovation through closer collaboration can drive out waste and reduce cost, then the Leadership Council can be confident there is a great incentive to achieve one of their four targets.

Large and small companies are facing significant challenges in this market. It will be through closer collaboration that the industry best resolves them.

It will only be through fair payment across the industry that the business environment will foster such collaboration.

Mark Wakeford is managing director of Stepnell MD and chair of the Construction Alliance

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