New BESA chief executive, David Frise.
David Frise welcomed this week’s promise from business secretary Greg Clark that “urgent” changes would be made to public sector procurement policies. This followed a pledge from Chancellor Philip Hammond in his Spring Statement to address the “scourge of late payments”.
However, Mr Frise urged the government to pick up the pace of reform in light of the insolvency of the large building engineering company Vaughan Engineering, directly linked to the January collapse of construction firm Carillion.
He said: “Thousands of SMEs have been left in a perilous financial state as a result of Carillion and the government must respond. Today there are 160 people facing redundancy directly as a result of Carillion failing to pay Vaughan Engineering for completed work.
“The government must not stand idly by and watch more companies go under and more people lose their jobs.”
MPs investigating the Carillion insolvency have expressed grave concerns about the Prompt Payment Code (PPC) administered by the Department for Business, Energy and Industrial Strategy (BEIS). Carillion was a signatory to the code and received public sector contracts as a result, but forced its own supply chain contractors to accept 126-day payment terms.
Mr Clark told the Carillion committee that the code was “not adequate” and that discussions with small businesses had highlighted a number of ways in which “we can strengthen those requirements”. However, he said there was no “specific timetable”, despite acknowledging that it was “fundamental to the economy”.
Mr Frise said it was “rubbing salt into the wounds” that Carillion’s administrator PwC had reportedly received more than £20m for its work during the first two months after Carillion collapsed. MPs accused PwC of “milking the Carillion cow dry”.
BESA, along with the electrotechnical and engineering services body ECA, met Mr Clark in the aftermath of the Carillion insolvency. They stressed to him the importance of supporting payment security measures such as placing retention money in ring-fenced deposit protection schemes; project bank accounts; and public contracts payment models.
“The government already has many of the tools it needs to tackle this problem,” said Mr Frise. “The Aldous Bill, which seeks to bring about reform of the retentions system, is due to have its next reading in Parliament on April 27. Project bank accounts are being widely – but not universally – adopted, and the emergence of digital payment makes transparency in supply chain finance far easier to achieve.
“I can’t see why this needs any further discussion.”
After an appeal for help from Vaughan Engineering, BESA also intervened directly on its behalf but received no response from local or central government. The Association is continuing to support a number of other member firms affected by the Carillion fall-out.
Vaughan Engineering was owed more than £600,000 for projects already completed on behalf of Carillion and was contracted to carry out a further £1.1m worth of Carillion work in the first quarter of this year. The 50-year-old family run company had continued to pay its workforce despite no payment coming from the administrators or government.
“This company paid more than £6m annually in salaries and maintained a skilled workforce contributing to vital public sector projects,” said Mr Frise. “On top of this, it was paying substantial amounts to its own supply chain and contributing to the wider economy through tax. All of this will be lost through no fault of its own.
“PwC blithely informed the industry that none of the payments outstanding on January 15 [when Carillion went under, owing an estimated £2bn to approximately 30,000 suppliers] would be paid, but are, no doubt, receiving their own multi-million pound fees without delay while thousands of SMEs face ruin.”
Mr Frise concluded: “We have had multiple voluntary late payment initiatives over the last two decades – none of which proved of to be of any use whatsoever in the face of notorious late-payers like Carillion. Mr Clark is right when he says this is an urgent problem that is fundamental to our economy. So let’s have urgent and tough action – starting with getting the Aldous Bill through Parliament on April 27.”