The construction minister has told Kier it needs to stop using extended payment terms to finance the business in the wake of its £264m rights issue.
MP Richard Harrington was responding to questions from CN regarding Kier’s announcement, which blamed the cash call on factors including “increased pressure” to shorten supply chain payment terms.
“That may cause a problem for them, but we’ve got to stop companies financing themselves with money that effectively belongs to other people, which is what these late payments are,” he told CN.
“So I make no excuse for that at all.”
CN put the minister’s comments directly to Kier boss Hadyn Mursell, who said in reply that he would “be happy to explain it [Kier’s approach to payments] to him if [the minister] ever wants to discuss it with me”.
News of Kier’s attempts to raise capital to pay down its debt pile broke as Mr Harrington was announcing a £72m investment in a Core Innovation Hub fund designed to boost construction research and development.
When asked if the government was prepared for another industry failure on the scale of Carillion, the minister said resources were being committed to preparing for such an event.
“The government has got very robust systems and management time is being spent on making those more robust,” he said.
“Some of the Carillion issues, from what I can understand, were to do with chasing volume at the expense of margin, and I think there are lessons within that – particularly where government contracts are involved.”
Addressing Kier’s rights issue directly, the construction minister told CN that, though he was “not familiar” with the specifics, he was “sure they were looking towards long-term stability”.
Mr Harrington added that, while some contractors may still run into difficulties, “smart” firms should adapt their practices.
“The smart tier one contractors will change as they go on – it’s an evolution,” he said. “I think some might go by the wayside, but many will evolve for the future.”
Last month, the minister told the CN Summit that the government was looking to legislate on late payments, but that Whitehall itself needed to ensure it was paying customers on time.
“Something festering underneath is late payments,” he told delegates. “We don’t want a sledgehammer to crack a nut; the government has to lead by example.
“We will have to legislate; we don’t want to make law after law, but sometimes we have to act.”