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CLC chief: Tier ones not delaying payments

Construction Leadership Council co-chair Andy Mitchell has said he does not think “many” tier one contractors are delaying payments or abusing terms.

Speaking to Construction News at a CLC briefing on Wednesday, Mr Mitchell said he believed payment problems were chiefly located elsewhere in the supply chain.

“The majority of people at tier one and client level would sign up and say yes they agree [with prompt payment].

“The problem is that that gets lost I think as you go further down [the supply chain], because I don’t think there are many tier ones at all who are abusing the payment terms and delaying payments.

“Certainly in the infrastructure space I’m in, it’s a specification of the contract: thou shalt pay promptly.”

Mr Mitchell has been chief executive of the £4.2bn Tideway project since 2014 and said payment on the project was monitored, but that the effectiveness of this oversight was questionable.

He said. “As a client we do [monitor contractor payments], but how effective is that? I don’t know.

“We think we’re aware of the promptness of payment throughout the supply chain – but if I can be honest, we’re aware probably of the first two tiers; it does get quite hard thereafter.”

Asked whether he would look closely at prompt payment as co-chair of the CLC alongside construction minister Richard Harrington, Mr Mitchell said: “We have to; 98 per cent of companies in this industry are the people who are likely to suffering from that kind of stuff [late payment].

“If you can’t address that, you’re not really working on behalf of the industry, are you.”

Mr Mitchell said improving payment terms for SMEs was essential for the health of the industry.

“We’re never going to get a sustainable industry if we don’t sort this out, because cashflow is the lifeblood of most small companies,” he said.

He added: “If you talk about innovation, where does it come from? It comes from the lower tiers, it comes from the SMEs.”

To improve prompt payment for the supply chain, Mr Mitchell said the government could have a big impact by changing the way it procured work.

He said: “We should be saying to government that there should be a whole bunch of […] requirements.”

He added: “If you can’t show how you’ve addressed the environmental requirements, if you can’t show that you’ve thought through the whole-life cost, if you can’t show you can manage the supply chain fairly, then you shouldn’t be getting any money. It should be that simple.

“That’s what we can do here, but we’ve got to be bold enough and believe we’re speaking on behalf of the industry to say to government, ‘Look, this is just how it has to be’ – that will shake things up.”

The CLC is now in its fifth year and Mr Mitchell said it had moved from being a quasi-think tank and was now in its “doing phase”.

With the £420m sector deal in place, the CLC said it wanted to maximise returns on the investment by improving industry productivity.

Among its stated aims were to increase the use of new digital technology to improve certainty of delivery, boost the amount of offsite construction through new manufacturing techniques, and focus on the whole-life performance and value of assets rather than just construction costs.

To implement the changes outlined by the CLC, Mr Mitchell told CN he wanted to make the organisation more representative of SMEs.

“For me, a really, really important first step is to get that representation right, to talk to those organisations and say, ‘Right, how do you want to fit with this and how are we going to make this work?’,” he said.

Without more involvement from SMEs, Mr Mitchell said the CLC would be “just talking to ourselves”.

If you want to share your experience of late payment in confidence then please email david.price@emap.com or fill in our payment practices form below.

Readers' comments (19)

  • I would suggest looking a lot further down the supply chain might be the place to start... all too often you hear of small companies being paid late, struggling then to pay their own workforce or suppliers. These reports always focus on those at the top... maybe try starting from the bottom up to expose who really is hiding behind late payments.

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  • Think he’s awayvwith the fairies - it starts with the tier ones and then everyone else just tries to survive. Cut out the tier ones and behaviours improve.

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  • Be under no illusion that the Tier 1s are indeed still paying late as always no matter what contractual terms are agreed and signed up to. The same as contractors are being screwed down to even more unrealistic programmes that are forcing companies to take contracts with 0 chance of profit or break even and hope for the best. The rail industry is indeed at a turning point but it is not a good one, many more established companies will fold over the next couple of years due to the incompetence and poor management of tier 1 contractors whose staff are mostly made up of self employed mercenaries who go from one failing company / project to another increasing their pay each time. Those who care about the industry and the pride of engineering have been forced out by those who have the flashiest car and can talk the talk but not walk the walk because they just dont care

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  • Construction Leadership Council co-chair Andy Mitchell has said he does not think “many” tier one contractors are delaying payments or abusing terms.

    I am sorry Mr Mitchell but I am now wondering if you are the right person to be the CLC co-chair.
    You are so wrong it is laughable.
    Why don't you use your initiative and personally do credit checks on all the Tier 1 companies - you are in for a very harsh lesson in cold hard reality. Check their payment performance and their working capital ratio and then try to explain to any SME why they should be lending money to Tier 1 companies.
    Your comments show a level of naivety that makes you part of the problem. As CLC co-chair you should be part of the solution.

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  • Extracts from CN Article on Kier

    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).

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  • The problem is also hidden by most valuations being about 25% undervalued. Even though analysis shows these are being paid late, it is difficult to expose the continual under valuation, which is rife and getting worse. Kier are absolutely terrible for it.

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  • As stated in the previous comment there is a payment and an undervaluation problem particularly driven in the rail industry by Network Rail and the Treasury. NR employ external auditors to delay payment by continually asking for more information and sometimes going back over items already audited and agreed. It allows millions to be withheld and allows NR managers to cover their incompetence until they are moved to another project.

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  • Re above comment, the practice of undervaluation and continual request for substantiation is not exclusive to the rail industry by any stretch of the imagination, companies such as Ferrovial, Wills, Galiford, Kier etc have been employing these tactics for years. If you're lucky you'll generally get paid within the agreed timescales, but you'll get a fraction of what you've applied for. The sooner the industry weeds out or starts to shame these companies the better for all of us down the food chain !

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  • WOW!!

    Andy Mitchel where have you been looking? You can very quickly go one step down to sub-contractors all over the country who are saying the same thing and have been for a long long time.
    KIER & GALLIFORD TRY ARE STRAEGICALLY DELAYING PAYMENTS TO SUB-CONTRACTORS BOTH AT SITE AND HEAD OFFICE ACCOUNTS LEVEL.

    KIER; (note how in the latest accounts cash reserves have increased substantially).

    GALLIFORD TRY; (they now have no regional accounts teams and all calls are directed to a national call centre type arrangement) .

    If you are genuinely interested then get in touch and come and have a look at records and correspondence.

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  • A word for you Mr Mitchell.

    WHITEWASH.

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