Doing business in the construction sector today isn’t for the faint hearted. Margins are tight and there is a long list of investment possibilities for our cash, including improving how we work sustainably, design innovation, evolving HSEQ systems and the advent of BIM. What the industry does not need right now is the spectre of late payments, retentions and a move towards 120-day payment terms.
Cashflow can make or break a business and even more so for the many smaller businesses that operate in the construction sector. FPS members are not immune to these pressures, relying on quality cashflow to service their ‘must-pay’ expenses such as funding wages and salaries, equipment and materials purchases, interest payments, as well as R&D.
So, when it comes to cashflow, our sector has welcomed the advent of Project Bank Accounts (PBA’s), an initiative from the Cabinet Office, that have delivered certainty of payment on public sector construction projects. In fact, where they exist, the cash profile is improved significantly with payments being both regular and reliable, which is to be welcomed.
PBAs, a ring-fenced bank account from which payments are made directly and simultaneously by a client to members of their supply chain, clearly have benefits. However, several high profile Principal Contractors have recently gone on the record complaining that this new mechanism is unworkable when they (the PC’s) are working at such low margins.
This may be true, but withholding cash from the supply chain is not the answer either. If we are interested in the wider topic of sustainability, then most would agree that it has an economic angle to it: not paying the contractors that, actually physically build our infrastructure, in good time does nothing to meet this objective. The suppliers and subcontractors would much prefer it if the Principal’s made the margins they deserved directly from their construction activities rather than leveraging cash.
Whilst the FPS supports PBA’s, they are yet to be common across the whole of the industry, which is why the FPS is a strong supporter of the NSCC’s Fair Payment Campaign, which tackles a number of issues relating to payment.
Take the out-dated issue of retentions, which the FPS and pretty much all sectors of the construction supply chain see as unnecessary in the modern construction environment. Taking retentions neither guarantees nor incentivises quality in any given works. It is far better to be diligent in selecting the subcontractor in the first place as this is the only real guarantee of competence. Audited membership of organisations such as the FPS, which stand for the highest levels of health and safety, training and technical performance, should be seen as a real differentiator when making these choices.
We all understand the importance of cash, but in today’s market, it is more vital than ever. Being at the end of a supply chain can be a tough place, when everyone “up the line” is managing their creditors. It is a buyers’ market and everyone is seeking to drive a hard bargain. However, for the specialists amongst us, whilst we can and should be prepared to be challenged on price, let’s not capitulate on the terms that drive that all important commodity – cash!