Protracted payment times to contractors is leading the pack of red flags that should have been spotted before Carillion collapsed — and must act as a warning to other suppliers in future.
The Labour Party appears to be have been the first since the construction giant’s liquidation to draw attention to the subtext of subcontractors being told to wait 120 days for their money.
Although this four-month payment term from Carillion dates back to last July, Labour MP John Trickett said last week that terms of just 30 days is one of seven criteria that firms would in future have to meet to retain their outsourcing contracts.
The other criteria, which a Jeremy Corby-led government claims it would tell firms they either follow or forego public contracts for breaching, relate to equal opportunities, union recognition, staff training, salary ratios, tax compliance and ‘green’ credentials.
Out of all these tests, it is prompt payment which the Federation of Small Businesses has most vocally welcomed. And it agrees with Mr Trickett’s proposed price for flouting it, albeit as part of a ‘three strikes and you’re out’ policy.
“The worst offending companies should be struck off and stripped of the right to be awarded public sector contracts until their [payment practices] have improved,” says FSB’s Mike Cherry.
“Carillion were notorious for being late payers…[and] although they were signatories of the Prompt Payement Code (which recommends a 30-day term), Carillion were able to use their dominant position to squeeze smaller firms to mask their own financial failings.”
Fresh backing of both the Labour and FSB positions was indirectly sounded at the weekend by James Reed, chairman of the recruitment outfit Reed Recruitment.
He told the Mail on Sunday that big firms which take “too long” to pay their small suppliers should have no right to public sector contracts.
There was no elaboration of ‘too long,’ however 120 days is likely to more than qualify, as Reed reportedly stopped supplying temporary workers to Carillion once it put the120-day term in place.
Mr Reed added:“’Doing a Carillion’ should be the commercial equivalent of drunk-driving; selfish, damaging to others and socially unacceptable.”
OpenOpps, a database for public contracts, has said that an estimated 30,000 small firms are owed money from Carillion’s collapse, further to a reported 450 contracts with 208 different public bodies that require renegotiation.
Writing on Twitter, OpenOpps boss Ian Makgill reflected: “The biggest problem that we face is that more and more money is going to fewer and fewer suppliers. In local government, 20 companies earn more than the 75,000 small businesses that supply the sector.”