Morgan Sindall chief executive John Morgan has said legislation to force faster payment in the construction industry is not required.
Mr Morgan was speaking to analysts yesterday following the company’s half-year results when he was asked how payment practices could change.
Liberum analyst Joe Brent asked: “There is a concern in the wake of Carillion that companies are under pressure to pay suppliers quicker in the future; how do you see payment terms developing?”
Mr Morgan replied: “We’re all competing for the very best supply chain and one of the best ways to compete is to be one of the best payers.
“So the market will make contractors pay quicker; it doesn’t need regulation.”
Morgan Sindall finance director Steve Crummett said the company “takes its supply chain relationships very seriously indeed”.
He added that, in light of discussions about retentions in the industry, Morgan Sindall had “a business model that does not depend on the use of retentions”.
“Retentions held against us by our customers, minus the retentions held by us on our suppliers, is a net receivable owing to us of £5m,” he said.
Analysis of the payment practices among the UK’s 20 biggest contractors by Construction News found Morgan Sindall was the ninth best payer.
Its average time to pay an invoice was 44 days, better than the top-20 average of 47 days.
Morgan Sindall was also one of the best contractors when it came to paying to terms, with just over 75 per cent of invoices being paid on time.
The top-20 average was 62 per cent of invoices paid on time.
Morgan Sindall’s half-year results published yesterday showed the company was profitable in all divisions, with the pre-tax margin in its construction and infrastructure business rising from 1.8 per cent to 2.1 per cent.
Revenue in the division for the six months to 30 June 2018 was 5 per cent lower than for the same period of 2017.
Mr Crummett said full-year revenue for the construction arm was likely to fall to the £600m-£650m range from the £807m it achieved in 2017 as the company became more selective over its projects.
“We’re excited about construction,” Mr Morgan said. “And we’re very happy for the turnover to come down.”
Morgan Sindall expects the fall in revenue to coincide with an improvement in margins.
The company has upgraded its target for the construction business from 2 per cent to 2.5 per cent over the next two to three years on the back of a positive first half of 2018.
Mr Crummett said that 93 per cent of the company’s construction order book, which stands at £1.76bn, was framework, two-stage tender and negotiated work.
“[Contracts] tend to be high-quality, in terms of less volatility, so more certainty in delivering a margin,” Mr Crummett said.
He added that the make-up of the order book had changed dramatically compared with five years ago when single-stage tendered jobs accounted for around 80 per cent of future work.