Payment Due

On 22 April, a supply chain payment charter for the UK construction industry was launched by the Construction Leadership Council (CLC). The CLC was established last year to implement Construction 2025: industrial strategy for construction. Its members consist of representatives from industry and the Government.

What is the fair payment charter?

The charter sets out several fair payment commitments, which include:

  • a 60 day maximum payment period with immediate effect, decreasing to 45 days from June 2015 and 30 days from January 2018
  • the issue of ‘pay less’ notices at the earliest opportunity and no later than 7 days prior to the final date for payment
  • not deliberately delaying or unreasonably withholding payment
  • not withholding cash retentions by 2025
  • usingProject Bank Accounts on central Government contracts unless there are compelling reasons not to do so and on other contracts where appropriate
  • making payments electronically
  • agreeing to be monitored for compliance by reporting against a set of agreed key performance indicators (KPIs)
  • agreeing to consider the performance of other firms against the KPIs when awarding contracts

Who has already signed up?

Nine firms have already signed up, including: British Land, Kier, Laing O’Rourke, Skanska, Berkeley Group, Stepnell, Imtech UK, Barratt Developments and Stanford Industrial Concrete Flooring.

Why is the supply chain payment charter needed?

If payment practices in the industry can be improved then the number of companies going insolvent would reduce along with financing costs, e.g. lower interest charges. There would also be less disruption to projects, reducing project costs and timescales further.

The charter is not intended to solve the issue of late payment in the industry overnight but it does build on and complement existing legislation and policy, e.g. the Housing Grants, Construction & Regeneration Act 1996. Its aim is to help “create a more collaborative culture and ensure a strong, resilient and sustainable supply chain”.

Any concerns?

As there does not appear to be any method of enforcement under the charter the consequences of non-compliance are not yet clear. This is because the charter is very much one of encouraging fair payment rather than enforcement.

Undoubtedly, the effectiveness of the charter will increase as more parties sign up. It just may take some time for industry-wide acceptance.

As always, watch this space.

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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.