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Interserve MD: 42-day payment change driven by rivals

Interserve Construction managing director Gordon Kew said the firm extended its payment terms last year because its competitors had done the same.

Speaking to Construction News, Mr Kew explained why the contractor extended its payment terms from 30 to 42 days during 2017.

“A lot of our competitors are on 45 or 60-day [payment terms] and we were paying on 30 days,” he said.

The decision was also driven by the need to “manage cash” in the business, the MD added.

Focus on late payment in the industry has increased in recent months following the collapse of several major construction firms.

While acknowledging this concern, Mr Kew noted that late payment was not unique to subcontractors. “As main contractors we often struggle to get paid,” he said.

In its annual report for 2017, chairman Glyn Barker said Interserve’s liquidity had come under pressure last year, partly due to problems on energy-from-waste projects.

This had led to “aggressive working capital management” in its operations, which he said was “unfair on our suppliers and unsustainable”.

Its £840m refinancing agreement secured last month has relieved that pressure for now, Mr Barker suggested.

Speaking to CN, Mr Kew said that being paid to terms was as important as the length of time it took to pay.

“The really important thing, I think, is paying to terms,” he said. “So whether it’s 30 days, 42 days, 60 days, whatever, the important thing is that when you’ve agreed those terms, you pay to them.”

Interserve had remained “consistent” in how it pays its subcontractors in spite of its financial troubles over the past couple of years, according to Mr Kew.

However, the MD argued there was a problem in the construction industry around agreeing costs.

“I think where you do get into difficulties is more around agreeing variations and the like, and there’s always a bit of give and take in that regard and payment on account and that sort of thing,” he said.

“But in terms of scope of work and the terms, we pay to those terms.”

As part of Interserve’s Fit For Growth turnaround programme, chief executive Debbie White said the company would use its size to “leverage” its purchasing power.

Mr Kew said for the construction division, this would mean “spending more with less”.

“We’re going to get closer to a tighter supply chain,” he said. “With the subcontractors it’s about bringing them closer to us and making them more aware of what we’re working on as a business, and helping them to help us manage the peaks and troughs in delivering our projects.”

At the presentation of the company’s 2017 results, chief financial officer Mark Whiteling said trade credit insurance had dried up for its suppliers in response to Interserve’s financial problems and wider issues in the market.

As a result, the company had been forced to pay out around £15m in advance payments to suppliers.

Mr Kew told CN he did not know whether the situation had changed since the company had finalised its refinancing and released its results, but said it was something Interserve’s was “absolutely focused on”.

“In a post-Carillion world, we want that trade credit insurance to be turned back on,” he said.

He added that Interserve had also worked to support a number of smaller suppliers facing difficulties, some as a result of Carillion’s collapse.

“We work closely with our supply chain and if we can help manage an early payment, for some of our more traditional contractors perhaps on some smaller jobs, some labour-onlys who might be on 14-days [payment terms], [we’ll do] something like that.”

However, Mr Kew said he had not encountered many suppliers that had been significantly affected by Carillion.

“When I speak to subcontractors, one of the first questions I ask them is, ‘Have you been bitten by Carillion?’ Thankfully most of them have managed to protect themselves.”

However, he added that the industry may not yet have “seen all the fallout” from Carillion’s collapse.

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Readers' comments (4)

  • Here we go again...

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  • In other words, translated from that management speak. You're skint.

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  • What a load of waffle - agree with above comments - here we go again and yes definitely skint!

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  • Take note Mr Kew - the comments above really are an indicator of how tired suppliers are getting at the shocking ethics and morals of many large companies in regard to how they treat their suppliers.
    "the firm extended its payment terms last year because its competitors had done the same" - honestly, this attitude beggars belief, but it is SO common in construction. Are the leaders of these companies really fit to be leaders because this is like small children in the school playground. Has Mr Kew not thought about rising above the bad attitude of his competitors and being a leading example of the best of British business ethics? Good ethics and morals are what we try to teach children!
    "The decision was also driven by the need to "manage cash" " - So as pointed out in the above comments, we get to the crux of the problem which is actually MISmanagment of cash. GET A BANK LOAN - Supply Chain Finance is contemptible - when will you learn this?
    The really important thing, I think (contrary to Mr Kew's thoughts) is paying to your SUPPLIERS terms. Too many big companies are now telling suppliers what the terms are, just like Mr Kew telling his suppliers that their payment terms are 42 days. My response to this - you are entitled to run your business how you like but don't tell me how to run mine. We have several large construction customers who now pay on proforma because we have closed their accounts. No company is too large to be above good business ethics and morals.

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