Thousands of subcontractors in the construction industry are currently in limbo regarding retention payments owed by Carillion, amid news that the UK’s second largest contractor fell into liquidation earlier this year – with potentially catastrophic consequences for hundreds of small-medium construction businesses around the UK.
It is estimated that Carillion could potentially be sitting on a figure close to £800 million belonging to subcontractors. After the liquidation, it is feared that there may be no prospect of this money being directed to its rightful owners – subcontractors in the construction industry who have carried out works on behalf of the doomed firm.
Earlier this month, MP for Waveney Peter Aldous had introduced a draft bill aimed at amending the Construction Act of 1996. The proposed amendment would ensure that any retention money owed to subcontractors would be held in a deposit protection scheme to prevent small-medium enterprises from losing out in situations such as the Carillion liquidation.
Tim Hopkinson, the current president of the Building Engineering Services Association, echoed Mr Aldous’ sentiments, adding that the amendment to the bill was “developed precisely” to avoid scenarios where subcontractors were losing out, and that unless “retention money was protected” the danger remains that the problems faced by Carillion would simply shift elsewhere, leaving SME’s in an as equally vulnerable a position as before.
Time for Change
Both BESA and the Electrical Contractors’ Association have called for plans to be put in place to allow any small-medium contractors currently embroiled in Carillion projects to be allowed to oversee the contract through to fruition and to be paid directly by the public-sector purse upon its completion. Such an arrangement would be favourable to many companies who are otherwise set to lose out.
In addition to this, BESA and the ECA have also called for major public-sector suppliers, such as Carillion, to be prevented from tendering for contracts until it can arrange for systems to be put into place which proves it can pay its supply chain promptly and efficiently. Such reforms would also require the development of a government body to monitor/enforce public-sector 30-day supply chain rules – ending adherence to Carillion’s 126-day payment terms – which have been criticised by many construction subcontractors as being disruptive to cash-flow.
Clear and Present Danger
The Carillion debacle has highlighted that competent small-medium enterprises are at risk of being starved of working capital through no fault of their own – and with this comes a very real risk of insolvency.
The dangers posed by recent abuses of the retentions system need to be scrutinised to protect subcontractors. If left as it is, the impact on the construction industry could be devastating – with the knock-on effects resulting in a dip in GDP as increasing numbers of small firms go under, which in turn will affect the business of building supplies companies, the recruitment sector and more.
The downfall of Carillion essentially demonstrates that the industry in its current state is akin to a house of cards, and unless it is stabilised by legislative reforms which protect the rights and the funds of small-medium contractors, it could come crashing down with dire consequences for the entire nation.
Lydon Contracting Ltd
Tel: 01327 811533