Kier’s finance director has defended the firm’s payment practices following criticism at a select committee hearing, claiming the firm is “consistent” and that the onus on improvement must sit with clients.
Speaking exclusively to CN, Bev Dew called for “equality” in payment throughout the supply chain and said £60m of payment to suppliers was going out within 21 days through its early payment facility.
“The key is for equality […] the onus on [prompt] payment cannot just sit with the main contractor; it’s got to sit with the client and you’ve got to make sure the risk transfer and the payment transfer is all commensurate,” he said.
In a select committee hearing last week, Kier, along with maintenance firm Mears, was cited as one of the worst payers in the industry by an SME owner giving evidence.
Responding to the accusations, Mr Dew said: “We value our supply chain relationships and we try to pay our people as consistently as we can.”
According to self-reported data on the government’s payment practices portal, Kier Construction paid its suppliers in 54 days on average.
Compared with other tier one firms, Mr Dew said he believed Kier was “pretty much smack in the middle” when it came to payment terms.
According to CN’s analysis of the payment reports submitted to government by the 10 largest contractors, only Costain takes longer on average to pay suppliers at 59 days.
At 54 days, Kier matches Balfour Beatty’s average payment time but is slower than the other six top-10 firms that have reported so far (Laing O’Rourke is due to report by the end of this month).
However, Mr Dew said the data on the payment practices site was skewed by Kier’s early payment facility.
Invoices filed through this are classed as 90-day payments for the purposes of prompt payment reporting, he said, but suppliers can access their money for a fee of “one-and-a-bit per cent” after 21 days.
“Our guys receive their money quite a lot quicker than 54 days,” he added.
The finance director said that “two-thirds of our payments in construction go out in around 21 days” through the early payment facility, which represents around £60m a month.
Using the facility is voluntary and involves a variable percentage fee of just over 1 per cent.
“The supply chain value it hugely,” Mr Dew said of the facility.
Asked whether he was satisfied with this performance or wanted to improve it, Mr Dew said: “We’re consistent. I think that’s key.”
He added: “I’m not looking at fundamentally changing payment practices; for us it’s about being incredibly consistent.”
The government’s Prompt Payment Code, to which Kier is a signatory, states that firms should aim to pay suppliers in 30 days.
However, Mr Dew argued that the tier one model would no longer work if the government forcibly mandated such payment terms.
“The model within the UK has been for the last 10-15 years that contractors make a very thin margin, but normally the main contractor maintains a balance of cash and can do other things with that,” he said.
“If the cash dynamic changes, then the model will have to change as well.”
Project bank accounts, where money is controlled by a third party, have been proposed as a way to speed up payment.
Mr Dew said this approach only worked for main contractors in sectors where margins were higher, such a major civils work, with the benefit of the higher return offsetting the cost of having less cash on the balance sheet during a project.
Kier has been targeted by short-sellers in recent months and Mr Dew said the firm is focused on showing the market “we control the debt, the debt doesn’t control us”, as CN reported on Monday.
He said he did not expect much improvement in the short position until there was more certainty around Brexit.