The National Specialist Contractors Council has warned subcontractors over Carillion’s 120-day terms and ‘complicated’ system for claiming ‘early’ payment.
Subcontractors that sign up to Carillion’s early payment facility risk being stuck with 120-day payment terms if the EPF is terminated, the NSCC warned its members.
It analysed Carillion’s early payment scheme, which requires suppliers to adopt 120-day payment terms with the option to access payments in advance of those terms for a bank fee.
“We cannot see why Carillion has extended its payment terms to 120 days; it just complicates an already complicated payment mechanism”
Suzannah Nichol, NSCC
If Carillion or the bank were to withdraw the EPF, sub-contractors would still be bound to 120-day terms, leaving them vulnerable to cash flow problems and unable to raise a dispute until after the four-month period, guidance said.
NSCC chief executive Suzannah Nichol said contractual payment terms of 120 days are “unacceptable both commercially and ethically” and called for “normal” 30-day payment terms.
“We cannot see why Carillion has extended its payment terms to 120 days; it just complicates an already complicated payment mechanism,” she said.
However, a Carillion spokesman confirmed that the contractor would renegotiate its terms with subcontractors if the EPF was terminated.
“If for any reason banks were to pull the plug, we would look to renegotiate terms with suppliers to be attractive and market competitive. We are not interested in losing suppliers.”
He added that it is “pretty hypothetical” that banks would withdraw from the EPF, and not something Carillion envisages happening.
Supplier Incentive Scheme
Carillion told the NSCC that specialist contractors are currently being paid in 45 days at no cost to them, as the contractor is reimbursing all bank charges paid by suppliers who reduce their actual payment terms to 45 days under its Supplier Incentive Scheme.
But NSCC guidance warned that the incentive scheme is not contractually documented, meaning that if Carillion chose to withdraw it the bank charges would have to be met by the subcontractor.
In response, a Carillion spokesman said the contractor’s terms with its suppliers range from payments in advance of work through to 65 days, and so the ‘incentive’ is negotiated on a contract by contract basis.
“What we have not and will not show is show is individual contracts we have with suppliers because they are commercially confidential. The purpose of the Supplier Incentive Scheme is to allow suppliers to be paid on the same terms as before,” he added.
Ms Nichol also said the NSCC had met with Carillion representatives and lawyers to interpret the scheme, and raised doubts about whether subcontractors would have the resources to understand the payment system.
She said: “It has taken a lot of effort and, if we have found it hard, I am not sure how a busy specialist contractor is supposed to understand it.”
Carillion said it had made an effort to explain the EPF to its suppliers.
“We have had workshops and banks sit with suppliers and government representatives. It is a bank product and not a Carillion product. We shall continue to try to explain and simplify it,” a spokesman said.
Last month Carillion entered negotiations with banks to expand its early payment scheme due to “high demand” from its suppliers.
“It has taken a lot of effort and, if we have found it hard, I am not sure how a busy specialist contractor is supposed to understand it”
Suzannah Nichol, NSCC
According to a survey carried out by the contractor over the summer, 90 per cent of suppliers surveyed agreed that the scheme had a positive effect on their ability to access payments promptly and at a time of their choosing.
Eighty-seven per cent of those surveyed said they would recommend the scheme to others.
The NSCC admitted that if Carillion continues to pay subcontractors in 45 days at no cost to them, “it could be a positive arrangement for Carillion and its supply chain”.
But it maintained that extending payment terms to 120-days is ‘grossly unfair’ to the supplier as businesses are expected to pay suppliers within 30 days on public contracts and within 60 days on private contracts.