Late payment blights Scottish construction

[Stock]

Late payment blights Scottish construction



Late payment problems have reached ‘epidemic proportions’ in the Scottish construction industry, according to a survey by the Scottish Building Federation.

Above: SBF executive director Michael Levack
Four out of five Scottish construction firms have had problems with late payment of invoices over the past year, with the average building company reporting almost £90,000 owed from overdue invoices.
The majority of contractors have had to write off unpaid invoices over the past year, with the average value of invoices written off at almost £6,000.
These are some of the key findings of the latest Scottish Construction Monitor, a regular survey of Scottish construction bosses conducted by the Scottish Building Federation (SBF).
The SBF represents 600 firms from sole traders to major contractors. Members were also asked how confident they were about their prospects over the next 12 months compared to the past year. The latest survey indicates industry confidence has risen by five points compared to the previous quarter but remains pretty feeble at minus 23.
Only 21.3% of respondents said they were more confident about the next 12 months; 46.3 said they were less confident.
The SBF warns that many firms are having their cash-flow undermined by late payments, raising the threat of potential business failure. The findings are published as the latest official statistics show 164 Scottish building firms were forced into bankruptcy last year, a rise of 122% on the number of construction companies going bust back in 2008.
SBF executive director Michael Levack said: “Late payment of invoices has long been the bane of many construction firms. But in the current economic climate, it risks becoming the difference between continued trading and business failure. For Scotland’s construction industry, this survey demonstrates that late payments have become an issue of epidemic proportions, affecting an overwhelming majority of businesses, irrespective of their size.
“What is more, a majority of construction firms have been forced to write off outstanding payments worth thousands because of persistent non-payment. It is a tragedy that otherwise excellent businesses are forced into bankruptcy because of a lack of the cash-flow they need to pay bills and salaries when customers fail to pay their bills on time – or at all. “
He concluded: “Confidence within the Scottish construction industry remains weak and the issue of late payments is certainly contributing to that overall lack of industry confidence. We welcome the Scottish Government’s ongoing ‘root and branch’ review of construction procurement. I hope this will include practical proposals to address the issue of late payments in the public sector. In the private sector, we need to see a greater appreciation of the serious problem this has become as well as tougher sanctions against clients that repeatedly fail to pay their bills on time.”

Q4 2009 – Q1 2013: Scottish Construction Confidence Rating

[ianoz]

Tis not only Scotland with the problem .

[Muz]

I recognised years ago that a large part of the problem in this industry is that firms, especially hirers like us have always given out far too much credit to firms with poor or no histories.

I get sick and tired of being the last man in the queue to get paid. As a result, inevetibly a weak contractor will use any excuse to avoid payment, so by and large we dont give out accounts to many customers now, they have to pay for their hires by credit cards.

Obviously this isnt go to work for everyone, but its sure eliminated a huge amount of bad credit for us ,.. just having a credit card terminal sitting in the office

Its definately worse than ever for bigger firms, and I wont work with many of them because they want the kit for nothing, then try every trick in the book to not pay for it

[Kimberly Access]

I think this is part and parcel of the economy right now, when we were in the 'boom' period, this type of problem was less seen. Too bad there is no specific process to follow other thwna typical credit-checking facilities etc.

[Stock]

An article I read today in the CIOB construction Manager..............



Many subcontractors are so starved of cash that they are cutting corners in their work, creating a legacy of unsafe buildings and that “will result in the deaths of people” a witness to the late payments inquiry told MPs.

Steve Sutherland of Dortech, a specialist commercial glazing contractor based in Huddersfield, said: “I feel very strongly about this... we've got the situation where I'm absolutely convinced ‘sick’ buildings are being built and creating a major legacy in this country. Some of the buildings… I've seen being built are shocking, are dangerous, and will eventually result in deaths of people.”
The inquiry was convened by Debbie Abrahams MP to investigate the effects of late payments by large businesses on SMEs, including the construction sector. In 2011 £24bn was owed and a third of SMEs were affected. Balfour Beatty also appeared before the committee this week.

Showing the MPs a photograph of a completed building in a city in the north of England his company was contracted to carry out maintenance work on, following the failure of the original contractor, Sutherland said: “Each piece of glass on there weighs approximately 200 kilos and there is a formally approved method of securing that glass in place. None of the formal procedures for securing that glass in place have been followed.”

“On this building we actually (had to) put on the equivalent of 300 metres of glass fixings and pressure plate where it’d been missed off (to secure the glass). And here on the 5th floor you can see that’s how the glass should be secured round its perimeter.
“The subcontractors, because they weren't being paid, presumably by the main contractor, couldn't afford (to do the work); or their supplier was not prepared to supply the material, so they were cutting lengths and just stitching the glass in.”
After giving evidence at the late payments inquiry, Sutherland added: “This is a problem I have seen repeated in cities and towns across the north of England.

“But I have to be very clear that every time we have pointed out problems with the standard of work in a building the main contractors have always reacted immediately to put the work right without skimping on the cost.
“But what’s shocking to me, and as clear as day, is that the reason many building jobs are having corners cut is the fact that the small subcontractors are not getting paid on time; are having payments retained and the main contractors are using every trick in the book to claw money back for themselves.
“As the economy dried up the big contractors started fighting for work and quoting prices below the cost of the job. So from that point on they do everything they can to claw back the money they have lost by screwing the small sub-contractor companies.

In reaction to Mr Sutherland’s revelations inquiry chair and creator of the Be Fair – Pay on Time campaign Debbie Abrahams, said: “I think we all know that the obvious result of a late payments culture is misery for the tens of thousands of SME owners, their staff and the knock on effect to their families but Steve’s testimony today has added a whole new dimension to the problem.
“Construction is one of the industries that is really being affected badly by the practice of late payments and it seems now that it could even be putting people’s lives at risk.
“Rather than viewing fair payment terms as part of their corporate social responsibility (CSR) many large companies are deliberately paying late or extending their pre-agreed payment terms simply because they have the power to do so.”
Another SME contributor Steve Paul, Managing Director, SDP Floor Screeds told the inquiry how main contractors had withheld payments totalling £1.2m sending his company, which he had built up over 25 years, into administration. He said: “It’s organised crime really, they know what they are doing and they are playing with us. They hung me out to dry.”