THE Scottish construction industry has been told it needs to ‘sort itself out’ after a recent survey highlighted ongoing payment and cash flow issues.
Experienced construction consultant Len Bunton, who is also co-chair of the CICV (Construction Industry Collective Voice) procurement and commercial group, told Project Scotland that some of the payment periods being reported are ‘absolutely ridiculous’, adding that he believes a number of businesses are starting to feel they have no future in the industry.
However, rather than pointing the finger at main contractors, Len feels that some of the issues firms are experiencing are partly self-induced as a result of entering into contracts without reading the small print and hoping for the best, and not putting payment applications together which are fully and properly substantiated.
The survey was organised by the CICV to understand the impact of financial pressures facing the Scottish construction sector. The aim was to gauge the challenges around payments and devise a plan to address them.
Some of the findings included:
• 79% of respondents said their business receives payments later than the agreed payment terms either ‘often’ or ‘very often’.
• 58% stated payment applications are reduced either ‘often’ or ‘very often’.
• 55% said the standard payment provisions in tender documents are adjusted to delay the final date either ‘often’ or ‘very often’.
• 37% admitted that delays or reductions in the interim payment process result in disputes when settling the final account either ‘often’ or ‘very often’.
• 30% of respondents revealed they have ‘often’ written off a disputed sum’s full or partial amount, while only 11% said this has ‘never’ happened.
Len Bunton said, “I wasn’t wholly surprised by the findings because I’ve been getting regular commentary from a number of my own clients about payment and cash flow problems that they were facing. I think what this survey has done has validated the fragility of the industry from a much wider number of contributors.
“Some of the payment periods that are being shown are absolutely ridiculous and it’s obviously causing not only financial distress to contractors, but the mental and emotional side of continually having to chase for payment.
“CICV will be looking to come forward with some proposals to improve the way contractors manage their financial side of projects. A number of different people are working on that at the present moment.
“This report should not be aiming solely in the direction of some of our major contractors; I think there’s a self-contributory issue that is having to be dealt with and that’s what CICV will hope to address. Some companies are not helping themselves.”
The publication of the survey followed the introduction of a Best Practice Guide by the CICV in the early part of 2023, which was intended to highlight what contractors need to do to improve the way they manage building contracts.
Len Bunton expressed his disappointment that only 76 responses were received to the survey despite CICV members encouraging businesses to participate.
This, he added, smacks of ‘apathy’ or reluctance to speak out. However, he reckons the results would have been broadly the same if 5,000 responses had been received, and the sample did include a good cross-section of the industry and different-sized businesses.
The CICV will now be seeking to gather support from the Scottish Construction Accord in helping to drive change.
“I think it’s very important that the Scottish Government recognises (these issues),” Len added. “There’s only so much the Government can do, and in no way is anybody blaming the Scottish Government or anybody else. I think the industry needs to sort itself out by itself – nobody’s going to do it for them. I do think that the public sector needs to see much more transparency of payments to the supply chain.”
David Logue, a partner at Gardiner & Theobald, who chairs the CICV’s consultants sub-group, told Project Scotland that clients also need to be educated on retentions, revealing that many withhold ‘large sums’ due to main contractor performance when in fact it is the supply chain that is being punished, particularly the early trades, many of which can be waiting years in some cases to receive their payments.
Iain Mcilwee, CEO of CICV membership organisation the Finishes and Interiors Sector (FIS), described it as ‘worrying’ that the industry keeps looping back to issues around payment and retention.
“The fact that 73% of companies are reporting challenges obtaining the release of retention is further evidence that the system is being abused and needs a rethink,” he added. “These issues become more critical when the availability of credit is reduced as the resilience the of supply chain is undermined.
“It is also worrying to see over a third of companies reporting delays or reductions in the interim payment process are leading to disputes. This wasted effort and angst takes a huge human toll and absolutely contributes to mental health issues we see in construction.
“The stark reality in these numbers is that the money is not flowing through the supply chain in the way it should and this stifles vital investment, innovation and undermines transformation.”
