Christmas can be a particularly stressful time for specialist contractors. Anecdotal evidence suggests that prime contractor payments start to dry up, whether by design or not, as the holiday season approaches. In the latest episode of CN’s First Site podcast, which covers the financial state of the specialty sector, Iain McIlwee says: “Every year we see it: people are fattening their books by slowing down payment at Christmas.”
The problem may be more severe during December, but cash flow isn’t just a seasonal problem for subcontractors. Our industry survey, released this week, uncovers the impact of both delinquency and the related issue of withholdings. The numbers are overwhelming. If this was just an economic issue it would be bad enough. But there’s also a human toll: 81% of the 217 respondents say poor or slow payment has affected their mental well-being.
This phrase is inadequate to describe the worst consequences. One of the respondents tells us that they have witnessed marriage breakups and suicides due to business failures due to late payment of major contractors. They write: “The damaging effects of abusive payment terms have made me hate an industry I once loved.”
Our accompanying article on what can be done to solve the problem lists a number of government guidance and voluntary codes on payments over the past few years. It is a tacit admission that ministers know there is a problem. However, the weakening and withdrawal of these agreements has resulted in slow progress at best.
Buried alongside November’s autumn statement were government proposals to require contractors to publish details of their withholdings. This is a move in the right direction, but relatively tame. First, it needs to be seen whether the proposed metrics will be more difficult to manipulate than the existing ones related to the time to pay bills. Second, while the principle of transparency is welcome, its impact on behavior change alone has not been proven.
Worse, we reveal that the government has rejected the only meaningful action it has taken. Whitehall departments with the biggest construction budgets are not following Cabinet Office guidelines that project bank accounts, meant to protect subcontractors, be used in all but exceptional circumstances.
The government is ideologically opposed to legislating on poor payment practices. However, it is clear that passing the wage to the market has not worked. Parts of the industry are caught in a self-perpetuating mistrust trap, embodied by the continued use of withholding and stalling tactics. This internal struggle slows down the sector. Rather than discarding a larger slice of an inadequately sized pie, prime contractors and their supply chains must work together to ensure they are served a large enough pie in the first place.
For mental health support, call the Lighthouse Construction Industry Helpline on 03456 051956 in the UK or 1800 939 122 in the Republic of Ireland. Or call Samaritans on 166 123.
