Things have been worsening for flooring contractors over the past 31 years. Why 31? The answer lies in an article in February CFJ headlined ‘What CFJ was reporting on 31 years ago’.
Barry Ashmore explores.

THIRTY-ONE years ago, CFJ ran an opinion piece from Richard Wollerton about payment, a subject which is very close to my heart. I’ve spent 54 years in construction (I turn 70 this month), and the past 34 years as a professional consultant helping specialist contractors get paid what they’re entitled to.

In that column, Richard referred to the DOM/1 and DOM/2 subcontracts that were in common use at the time and the fact that the contract specified payment was due one month after your start date onsite and was to be made 17 days after it became due.

Let me just repeat that: 17 days after it became due! You got paid in 17 days!

Compare that to today’s 45, 60 or even 90-day payment terms and you can see why I say things have been steadily getting worse. And payment isn’t the only thing that’s been getting worse: DOM/1 and DOM/2 were drafted in fair and reasonable terms between the parties, unlike the one-sided onerous terms in use by the vast majority of contractors.

No surprise then when thinking about this month’s article that my thoughts turned to an article I wrote 10 years ago entitled ‘The betrayal of the specialist contractor’.

The article is set out more or less in full below, so have a read and ask yourself if we’ve been going in the right direction over the past 10 years, because frankly in the past decade I think construction has been sinking further into the abyss.

THE UK’s construction and engineering subcontractors have been betrayed. For years they’ve suffered at the hands of unscrupulous or incompetent contractors, so it’s no surprise they’ve been betrayed by them. But things have reached an all-time low now they’ve also been so openly betrayed by the ‘industry’.

The construction industry is in a mess, and yet it continues to delude itself with works of fiction such as ‘Construction 20251’ which ‘sets out a vision and a plan for long-term strategic action by government and industry to continue to work together to promote the success of the UK construction sector’.

What a load of absolute rubbish! The only thing government and the ‘industry’ work together on is the promotion of more rubbish. What or whom is the ‘industry’ anyway?

And if they really think what they’re doing is going to ‘… put Britain at the forefront of global construction over the coming years2’ then they’re delusional.

Of course we have some worldclass people, and the odd worldclass practice and company. But saying we have a worldclass construction industry is just as ridiculous as saying we have a worldclass football team. If we had a worldclass industry we wouldn’t have:

• a massive skills shortage
• an ageing work force
• problems recruiting the brightest talent into the industry.

Nor would we:

• have allowed thousands of firms to be destroyed over the past few years
• allow the widespread use of onerous terms and conditions
• accept the unrealistic apportionment of risk in the supply chain.

And we certainly wouldn’t allow contractors to flaunt the law or allow them to stifle the flow of our money, hard-earned taxpayer’s money, such that 94.9% of specialist contractors have to wait longer than 30 days to get paid on public sector projects.

And despite what government and other worthies might have you believe, it isn’t getting better.

The third annual survey by StreetwiseSubbie.com3 revealed that government’s 30-day payment promise on publicly funded projects isn’t being seen through, with a staggering 94.9% of specialist contractors being paid in excess of 30 days, and some 4.7% having to wait longer than 90 days.

We undertook our first survey in 2012 in response to the disturbing number of specialist contracting companies that were being forced into insolvency, as a result of the deteriorating payment situation and the high incidence of contractual abuse in the construction industry.

Our surveys have been completed by substantial businesses across a whole range of specialisations in the industry. Indeed, the third survey was undertaken by 216 specialist contracting businesses, and 78% of those who responded are firms with a turnover in excess of £1m and about 14% are in the £5m plus bracket.

For those reasons we believe it’s a credible, authoritative survey and the results cannot be ignored.

Government would have you believe it’s investing in infrastructure to boost the industry and the economy, but those taxpayer pounds aren’t flowing down the supply chain. It’s being cut off at source to prop up ailing contractors who pay for their own incompetence with your money.

The survey also showed that there are similar issues on private sector construction projects, albeit slightly better, with about 11% of specialist contractors being paid in 30 days while a staggering 23.5% had to endure payments longer than 60 days.

And don’t think for a minute that challenging the payment terms on offer is an option. When payment terms are questioned by subbies, the contractors often adopts a ‘take it or leave it’ attitude, resulting in 61% of respondents saying they were unable to challenge payment terms.

‘The bigger the contractor the less likely to get better payment terms, take it or don’t do the job’ is typical of the responses we received.

Killing small businesses
To a small business, payment terms exceeding 30 days can mean the difference between survival and failure, with labour and material costs eating away at their cashflow while the contractors hold onto the money they so desperately need. And if you’ve run a specialist contracting business, you’d know delaying payment to your labour force or suppliers isn’t an option. The lads walk, and the suppliers put you on stop.

The failure of these small subcontracting businesses doesn’t reflect well on the growth of the economy or the rebuilding of a strong construction industry. While government plug its small business initiative, the outlook for small businesses in the UK construction industry is as bleak as ever.

One of the saddest calls I’ve had was from a lady who had run up personal debts of £100,000 trying to keep her husband’s shop-fitting business going. The contractor had piled more and more variations on them and demanded they did the work, but then didn’t pay them, leaving them no alternative but to fold the company.

How many families have been devastated by similar disgraceful payment practices?
According to the Office of National Statistics’ figures, in the 12 months ending Q3 2013, the highest number of liquidations was in the construction sector at 2,819, with 774 compulsory liquidations and 2,045 creditors’ voluntary liquidations.

Is it any surprise then that when Radio 5 Live’s Adrian Goldberg revealed the extent of payment abuse, the show got one of its biggest ever responses? But the subject seems just too complicated for the media to get its head around, or it can’t see the bigger picture, or it seems afraid to speak out. Either way payment abuse in the construction industry doesn’t grab the headlines.

Government is part of the problem, not the solution
Was it a coincidence that the day after that show back in October 2013, PM David Cameron said he’d act and announced a ‘consultation’ to look at helping small businesses get paid on time. What a coincidence!

So why do you think he did that? It can only be because government sees this as an issue on which they have been incredibly weak, and it’s an issue that isn’t going away any time soon.
They also know the British public will ultimately see the real motives for supporting the big businesses rather than the small ones. Call me cynical but the only thing that matters to David Cameron is trying to get re-elected and party funds don’t come in huge amounts from small businesses.

That’s not a political statement (I voted for them for Pete’s sake). It’s not political because I believe that is true of most politicians. The one exception I’ve come across is Debbie Abrahams (and this isn’t political either) who is fighting hard on this issue, and she deserves tremendous credit.

But let’s face it government has had plenty of time to deal with the national disgrace that is payment abuse in the construction industry, but it hasn’t.

So why believe them now?
Despite government’s pledges to ‘help’ the situation, our survey proves what they’re doing isn’t working. And when you scrape away the nonsense and promises to pay all specialist contractors promptly on public sector jobs, the reality is that less than 6% have actually received payment in 30 days.

And it isn’t just me that thinks the Construction Supply Chain Payment Charter won’t work: ‘Only a supreme, and poorly informed, optimist would take the view that the Charter is the panacea of all payment ills within the industry. It is not.’

Why don’t we have simple unbreakable rules?
When it comes to allowing companies to circumvent the law we must be the most stupid country in the world. And as someone who both works in the law and is immensely proud of being British it hurts me to say it.

But, having turned 60 this year, I’m old enough to have been resolving disputes for specialist contractors since before the Construction Act5. Back then the Act was hailed by practitioners such as me as an answer to the payment abuses meted out to specialist contractors by main contractors. Those old enough to remember, know that subby-bashing isn’t a new phenomenon6.

Regrettably the euphoria caused by the new act was short-lived as virtually every contractor invented ways to circumvent it, and those with the power to stop it just stood by and let them do it. What a waste of time and energy, but more particularly what a betrayal of Sir Michael Latham and all those that worked to genuinely address the problems of the industry at that time.

Once again, the specialist contractors were hung out to dry and left to the mercy of unscrupulous contractors who continued to write all manner of onerous terms into their contracts with impunity.

And when the problems with the act and the ways contractors evaded it became general knowledge, the establishment reacted slower than a snail’s pace, taking a mere 15 years to amend the Act8. And yet they still left loopholes.

No surprise then that when asked: ‘Do you think that the remedies available to get paid the correct amount and on time, such as the Construction Act, adjudication or litigation are suitable? 83.5% of or respondents to our survey said they were unsuitable, didn’t work, and needed changing.’

Blatant betrayal
When I was told Philip King, ceo of the Institute of Credit Management, had been appointed to draft a supply chain payment charter, because of his ‘independence’ I was mildly encouraged that some good would come of it. When one of our LinkedIn group members sent me a letter from Michael Fallon to fellow MP Claire Perry advising her that Philip King would be taking account of the StreetwiseSubbie Fair Treatment Charter9, I was delighted.

Courtesy of a freedom of information request, I have a copy of Philip King’s original draft submission dated October 2013, and it does indeed incorporate a good many of the principles of the StreetwiseSubbie fair treatment charter.

Why then did a fair and reasonable, and easily achievable, set of principles produced by a respected independent figure not get immediately adopted?

Why have the specialist contractors been betrayed by all involved?
No real surprise then that the interests of the tens of thousands of specialist contractors who make up the construction industry, were betrayed the same kind of leadership as the ‘all animals are equal’ kind found only in Animal Farm10.

The devil really is in the detail
So, what was left out and how did the independent draft become the watered down version that was issued? Here word for word are the important sections of Philip King’s draft that just got left out altogether:

• ‘We will use tendering processes that are fair and transparent and do not attempt to force prices to unsustainable low levels’
• ‘We will utilise recognised standard contracts without amending payment terms’
• ‘We will not change the measured works value agreed’ (when issuing pay less notices)
• ‘We will endeavour to put simple online systems in place allowing members of the supply chain to track the progress of invoices and payments’.

Why not stop the lunacy of lowest cost and driving the price down to unsustainable levels? Isn’t that what’s caused Balfour Beatty to issue five profit warnings in less than two years11? Why not use standard form contracts? After all that’s what the contractor usually signs up to with the employer.

Why not agree not to change the measured works value in a pay less notice? How the heck is the specialist contractor meant to know what has actually been certified for payment if it can be changed later?

Why not put simple on-line systems in place to enable payments to be tracked? Why should specialist contractors be forced to deal with payment call centres in India such as those used by Carillion? However, the biggest betrayal of all comes when those in high places speak of ‘cultural change’ and that ‘fairer payment practices are best achieved through encouraging rather than enforcing’.

And the Animal Farm pigs might fly. But then of course I remembered: ‘some animals are more equal than others’.
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info@streetwisesubbie.com
www.StreetwiseSubbie.com
Barry Ashmore is managing director and
co-founder of StreetwiseSubbie.com