SEC Group is highlighting a number of concerns relating to sharp practices, disruption to repair and maintenance contracts (which represent more than half of construction industry output) and the weak balance sheets of the large tier 1 contractors with implications for payment security along the supply chain.
Sharp practices
Some evidence is beginning to emerge of supply chains being informed that they will have to bear the risk of any disruption or delay caused to construction works as a result of COVID-19. This means that SMEs may have to bear the brunt of any liquidated damages passed down to them. This is generally facilitated by onerous contracts which are par for the course in construction.
Repair and maintenance contracts
There is increasing disruption to repair and maintenance contracts especially those involving planned maintenance to mechanical, electrical, plumbing and lift installations. Many contracts have termination at will clauses which often enable contracts to be brought to an end without compensation. Moreover, there are safety implications to be considered. Lifts, for example, require regular servicing to comply with statutory safety requirements. SEC Group is asking for clear guidance to be issued from both government and the Health and Safety Executive.
Payment security
Whilst public sector clients are being urged to ensure that all their payment obligations to their tier 1 contractors are discharged quickly there is concern that this will not be followed through along the supply chain. Moreover, any disruption or delay to projects could result in severe payment delays to supply chain firms which will be exacerbated by the fragile
balance sheets of the large companies. Supply chain contracts often allow for tier 1 contractors to suspend works without necessarily compensating their sub-contractors.
SEC Group’s chairman Trevor Hursthouse called on all clients of the UK’s construction industry to be on the look-out for distressed firms in their supply chains and ensure that, as much as possible, measures are put in place to alleviate such distress.
He added: “The UK construction industry is on a financial knife-edge. We need to ensure that the industry will still have the capacity and resources to deliver the construction and infrastructure needs that will be required when some level of normality returns.”
UK Government’s measures including the COVID-19 Procurement Policy Note, business loans, grants and other support measures are welcome - the challenge is turning out to be understanding precisely how and where the support is accessed. SEC Group will be monitoring access difficulties amongst members and will continue to support Government initiatives whilst also identifying delivery difficulties if they persist.