Late payment threatens Northern Ireland recovery
Northern Ireland's building services engineering sector has suffered more than any other UK region during the recession. This is largely because the public sector is responsible for 70 per cent of its construction activity and, as a result of the 2008 financial crisis and attempts to manage the government deficit, workloads plummeted.
An estimated 26,000 jobs have been lost in the province since 2008 as a direct result of collapsing construction activity.
The liquidation of the 100-year old Patton Group in November 2012 was a catastrophic blow to the region's specialist contractors, many of whom were among creditors owed £60m by the failed Ballymena-based main contractor.
As a result, the recovery in Northern Ireland is even more fragile than the rest of the UK. Construction output in the first quarter of this year was 12 per cent lower than the same period in 2012. However, there are signs that the worst may be over with market analysts Glenigan recording a five per cent underlying rise in project starts in the first six months of the year.
The Patton experience continues to cast a cloud over the industry and contractors remain nervous. A slim improvement in project activity does not constitute a sustainable recovery, particularly when specialist contractors have little security of payment. The 190 redundancies at Patton made the local headlines, but the collateral damage was much more serious as almost 200 local SMEs suffered heavy losses.
It was against this febrile backdrop that the Specialist Engineering Contractors' (SEC) Group Northern Ireland was launched at Stormont - the hugely impressive Belfast home of the Northern Ireland Assembly (NIA). The launch was the final piece in the jigsaw making the SEC Group a truly United Kingdom wide organisation representing the interests of specialist contractors at the top political level.
The group has long argued for the use of Project Bank Accounts (PBAs) to protect sub-contractors from main contractor insolvency and late payment abuse. As a result, the UK Government is now half way towards its target
of having £4bn worth of public sector contracts supported by PBAs and the Northern Ireland assembly is using the Patton experience to impose PBAs on local government projects.
'The penny has finally dropped,' says Brian Hood, the inaugural chairman of SEC Group Northern Ireland. 'The parliament now recognises they were listening to the wrong people. The construction industry had persuaded them that all was well and that sub-contractors were well looked after. So Pattons was a real kick in the pants.'
'As a result, we are now making some real progress and are determined to keep the momentum going,' says the managing director of Belfast contractor
Sheridan & Hood.
Speaking at the launch of the group, Mr Hood stressed that anything hindering cash flow was to the 'ultimate detriment of the finished product' and would undermine efforts to build a more sustainable and high quality construction industry in the province.
Des Armstrong, director of the Northern Ireland Civil Service's central procurement division, said payment practices were a particular concern for his department. 'We are working hard to introduce legislation and policies that
will improve industry performance,' he told the SEC Group launch.
He says that poor behaviour would be 'taken into account' when considering companies for government contracts.
A number of high profile projects in Northern Ireland are being built with the assistance of PBAs including new offices for the Department of Agriculture in Omagh. However, Patsy McGlone - chairman of the NIA's All Party Group on Construction - says specialist contractors need to improve their communication with the Government. 'We are not mind readers. We must hear from people at the coalface to make sure things move forward.'
He says the NIA had learned from the Patton experience, 'but we can only be successful if we are kept informed...that the trickledown effect is working and money is getting to sub-contractors'. He says Northern Ireland had £100m worth of infrastructure projects that had to be 'driven hard and fast'.
'Getting capital projects out the door is essential to our recovery and we can't afford to lose more skilled people,' says Mr McGlone.
PBAs will help to get the industry moving again right across the UK, according to SEC Group chairman Trevor Hursthouse. 'It is easy to talk about change, but much harder to actually bring it about. That is why the progress made with PBAs in Northern Ireland should encourage the rest of the UK.'
The Building & Engineering Services Association (B&ES) is a member of SEC Group and a driving force behind the PBA campaign. Chief executive Roderick Pettigrew congratulated the Northern Ireland group on its inauguration, but sounded a note of caution.
'It is tragic that it took something as catastrophic as the collapse of the Patton Group to wake people up to the very real dangers of late payment and cash retentions, but there is a lesson in Northern Ireland's experience for us all,' he said.
'The recovery is extremely fragile and particularly so for specialist contractors. We were late coming into the recession and it will be some months before we see real evidence of market strengthening feeding through to tier two and three contractors.
'This makes it more important than ever to stress the need for fair payment and responsible working practices. We are not taking anything for granted and the association will continue to lobby hard for payment reform throughout the UK.'
1 December 2013