Government contracts should include prequalification questions on past payment performance, and should consider contractor payment history as part of the bidding process, according to a new report.
That is one of 11 recommendations made by a cross-party parliamentary inquiry, convened and chaired by MP Debbie Abrahams into the issue of late payment to SMEs.
Recommendations also include that the government should establish a Construction Code of Conduct with an independent adjudicator for mediation.
Ms Abrahams said: “Until top chief executives and their executive board members make a decision to act ethically in business and treat our small and medium-sized businesses fairly, this problem will persist.”
Specialist Engineering Contractors group chief executive Professor Rudi Klein said: “Ms Abrahams is clearly committed to addressing this cancer of payment abuse that is currently pushing thousands of firms in the construction industry towards insolvency.
“Small construction firms in her constituency and throughout the UK will take heart from her Be Fair – Pay on Time campaign and the lead she has taken in driving forward this late payment inquiry into the issue.”
Dortech Architectural Systems chairman Steve Sutherland, who appeared before the inquiry on the SME panel, said: “The last 12 months have been the worst in my 45 working years.
“I have watched in disbelief as a tough market has driven major companies’ boards of directors to turn a blind eye to malpractice within their businesses and the resultant destruction of essential supply chain support, skills and entrepreneurialism on which the UK depends.”
The report recommended that the government should:
- Promote the adoption of ‘good practice’ guidance for large companies in managing supply chains, including publishing performance data relating to payment-on-time to suppliers in audited annual accounts.
- Encourage businesses to publish information for investors and shareholders defining their support of, and compliance with, ethical business practice – for example, signatories of FTSE4Good Index Series or Ethical Trading Initiative.
- Support SMEs in avoiding late payments through free, high-quality financial management advice and/or training – for example, through trade associations, SME organisations or local SME advisers.
- Work with SMEs and support the establishment or development of trade associations to negotiate, for example, a Fair Treatment Charter, on behalf of member organisations.
- Establish a Construction Code of Conduct, similar to the Grocery Code, with an independent adjudicator for mediation.
- Introduce a Retentions Monies Bill with money retained by a customer for a supplier to be held in a trust.
- Require all new government contracts to include prequalification questions on past payment performance, and should consider the payment history as part of the bidding process.
- Make fair payment a contractual requirement for new government contracts, with tier one contractors paid within 14 days, tier two within 19 days and tier three within 23 days.
- Support intermediary agencies, for example SME organisations or trade associations, to act on behalf of suppliers seeking recompense through Late Payments Directive.
- Implement a growth strategy that recognises the importance of SMEs and to commission research to assess the macroeconomic effects of late payments on SME suppliers.
- The report also recommended that the Institute of Credit Management should review and amend the PPC to reflect the issues identified.