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Revealed: Charter signatories to report on four KPIs

Institute of Credit Management chief executive Philip King has told Construction News he is “disappointed” by the time taken to develop terms for the supply chain payment charter.

Mr King, who was appointed to lead the development of monitoring arrangements for the commitments made by signatories to the charter, said a full set of reporting requirements would be agreed by the end of this year, with a website to be launched to publish the data collected.

He said a consultation in August produced “broad agreement” on four core key performance indicators that signatories would have to report on.

They are payment days in, payment days out, proportion of retentions and proportion of deals under supply chain finance agreements.

However, Mr King added that “we haven’t yet agreed what any of those will look like” and that work on how to roll out these monitoring arrangements would take place in early 2015.

“I’ve been involved in quite a few things with government and you’ve got quite a lot of parties involved – it always takes longer than you’d like it to. I think that’s life”

Philip King, Institute of Credit Management

The Construction Supply Chain Payment Charter was launched in April 2014 with 11 fair payment commitments, including that payment terms would be reduced to 30 days at the latest, on private as well as public sector jobs, from January 2018.

At its launch, nine clients and contractors from the Construction Leadership Council agreed to support it, but it does not yet have any formal signatories.

Asked how he would respond to those in the industry disappointed by the time taken to put the charter’s terms together, Mr King admitted he was “disappointed too” but that he would “rather get it right than rush and get it wrong”.

“I’ve been involved in quite a few things with government and you’ve got quite a lot of parties involved – it always takes longer than you’d like it to. I think that’s life,” he said.

Earlier this month, the government closed its consultation on enterprise adviser Lord Young’s recommendations to make public procurement more SME-friendly.

If his recommendations are adopted, all public sector bodies would be required to ensure the whole supply chain benefits from payment within 30 days.

Skanska to advise on Prompt Payment Code

The Department of Business, Innovation and Skills has announced it is undertaking a review of the Prompt Payment Code.

Skanska is among 11 businesses and organisations appointed to a new advisory board, which will draw up proposals to improve the monitoring and enforcement of the code and provide advice on whether the code should be updated, with its proposals to be implemented by spring 2015.

The board will be co-chaired by Mr King, who said it would “allow individuals to bring their expert advice to the table and identify further improvements to support the creation of an environment where paying on time is the norm rather than the exception”.

The voluntary Prompt Payment Code sets out principles for businesses to follow when dealing with and paying their suppliers.

However, it has been criticised by some in the construction industry for lacking monitoring and enforcement powers.

Mr King said it was important the KPIs for the construction charter covered information that is “easily extractible and easy to report on” for clients, main contractors and subcontractors.

However, Electrical Contractors’ Association head of business policy and practice Paul Reeve said he was concerned the four KPIs would not monitor compliance with all 11 fair payment commitments.

“Anyone who is a signatory really needs to be committing to all 11 commitments and if that isn’t going to be the case, that is a real issue,” he said.

“Will they be required to report against all 11 of the commitments, or will people cherry-pick what they report on? How few can you commit to before you are a signatory?”

He added that the priority should be to encourage clients and contractors to sign up to the principles of the charter.

“Are we going to change the world tomorrow? Frankly no we’re not. But I’m confident that we can make a difference”

Philip King, Institute of Credit Management

Mr King said there had not yet been a consultation on how compliance with the charter could be enforced.

“If someone is genuinely not adhering to what they signed up to, something has to happen,” he said. “But what form that will take, and how we’ll do it, is one bit of the jigsaw we haven’t got in place yet.

“I would be reluctant to suggest there would be any construction supply chain payment charter police out there going overboard.”

SEC Group chief executive Rudi Klein said the charter should be monitored on a project-by-project basis, with non-compliance with any of the 11 charter commitments reported as it happens and the data used to prevent non-compliant firms from undertaking public sector work.

In October, a survey of 216 specialist contractors by Streetwise Subbie revealed 92 per cent of specialist subcontractors working on publicly funded projects waited more than 30 days for payment.

Most – 61 per cent – said they were paid in 30 to 60 days, while 24 per cent waited 60 to 90 days for payment and 7 per cent waited more than 90 days.

Mr Klein said: “There was a lot of euphoria when [the charter] launched, but I didn’t whole-heartedly share in that because I could see what was going to happen, we’d end up in a situation of having no effective means of enforcing it.”

Mr King acknowledged that the charter would not meet everybody’s expectations, but that expectations had to be “tempered with some pragmatism”.

“Are we going to change the world tomorrow? Frankly no we’re not,” he said. “There are too many players in the game and too many variables. But I’m confident that we can make a difference.”

Readers' comments (2)

  • Robert Hudson

    Whilst we continue to be an industry based on confrontation I should think this will be painfully slow

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  • The only reason this is taking so long is because it will mean the large main contractors won't be able to use the monies withheld from the thousands of small SMEs to prop up their finances and would probably go bust without this free overdraft facility.

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