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Morgan Sindall boss: No need for late payment legislation

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.

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Readers' comments (6)

  • Is this news? Would anyone expect a turkey to vote for Christmas?
    Proud of 44 days?

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  • Legislative changes are required because Main Contractors still use bully-boy tactics and will continue to do so.

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  • that's exactly why it needs legislation to change it, their FD thinks its okay to have 5m of retention siting in there accounts because he's comfortable holding it from his sub-contractors,

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  • Agreed, this only reinforces the fact that Main Contractors have no understanding of the seriousness of this issue. Its getting worse in my view, not better. The systems that are in place now make it harder and harder for Qs's to pay the right amount on time.

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  • Are you really surprised that the main contractors think this way? Legislation is needed as this self-regulation, with work being carried out by sub-contractors only being paid on time in about 3/4 of cases isn't working. On his half year revenue figures that's at least £100 million plus that they are paying late, possibly up to 50% more than the standard 30 days payment terms and he is proud of that!! Bet if his wages were being paid that late each month, he'd be chasing accounts to find out why.

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  • This shows the disconnect between a main contractors board and what happens on site. This is what happened to Carillion. They start to believe the lies they try and sell to investors while their site teams just try and turn everyone over.

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