Trade body calls for action to protect SMEs from payment ‘abuse’

Alan Wilson

A trade association has called for better protection from payment ‘abuse’ for small and medium-sized enterprises (SMEs) operating in the Scottish construction sector.

In its submission to the Scottish Government’s Economy, Energy and Fair Work Committee, which is currently undertaking an inquiry into the construction industry, SELECT said reform of the payment system should include provisions to ensure that retention monies are protected in trust.

Retentions are monies withheld by clients to ensure all work is completed properly. The cash is supposed to be paid back in full once work is finished and confirmed as being compliant with industry standards. However, Alan Wilson, acting managing director of SELECT, said retentions are actually often used to boost the cashflow of the paying party.

“Retentions were not deducted from Carillion when it was working for the Defence Infrastructure Organisation on the Faslane works, but Carillion was deducting retentions from its supply chain,” Mr Wilson said. “SMEs regularly report late release or non-payment of cash retentions, which is a source of frustration across the industry. In addition, these monies are always at risk of not being paid if there is insolvency further up the supply chain.

“Research carried out by the UK government revealed that over a three-year period to 2016, firms in the industry were haemorrhaging almost £1 million worth of retentions per working day due to upstream insolvencies. Retentions legally belong to the firms from whom they have been withheld.

“SMEs often expend vast sums on training, design, manufacture, assembly or installation before receiving their first payments. Unlike many other countries advance payments or, alternatively, any form of security for payment for this up-front investment is rarely available.”