William Eichler 26 July 2018

Councils urged to protect SMEs in their supply chains

Local authorities have been urged to protect supply chain retention monies belonging to small and medium enterprises in their supply chains.

Data gathered through freedom of information requests made by the Specialist Engineering Contractors’ (SEC) Group has revealed a lack of oversight by councils of payment performance along the supply chain.

The majority of councils (77%) deduct a 5% cash retention and 16% of them deduct cash retentions in excess of 5%, the FOI responses demonstrated.

The majority of councils (53%) use cash retentions to bolster their working capital or fund other activities. 6% of respondents invested them in the overnight money markets.

Around 22% of local authorities do not deduct cash retentions at all. However, only four of them (1.5%) insist that their main contractors do not deduct retentions from the supply chain.

The vast majority of councils (80%) do not pass on any contractual requirements to their main suppliers or check on whether main contractors are releasing retention monies of their sub-contractors on time or at all.

The SEC Group also discovered that over 62% of councils are failing to comply with legislation requiring them to ensure that 30 day payment clauses are included in sub-contracts and sub-sub-contracts.

Finally, the FOI responses revealed that only 12% of councils have put in place some monitoring and reporting arrangements that sub-contractors are paid within 30 days.

‘Local authorities should consider how their projects can support small firms in their areas by insisting on fair treatment of their supply chains – ensuring that 30-day payment clauses are inserted and observed in supply chain contracts and that retentions, if held, are ring-fenced and released promptly across the supply chain,’ said Small Business Commissioner Paul Uppal.

‘As Small Business Commissioner, I am particularly concerned about the impact of payment problems on the mental health of those running small businesses. A statistic that I find particularly shocking is that construction workers are six times more likely to die by suicide than by falling from height.’

SEC Group president Lord O’Neil said that post-Carillion Parliament was becoming increasingly anxious about the position of SMEs in construction: ‘We have repeatedly asked Government to take action on cash retentions by adopting the Peter Aldous Bill to protect the supply chains’ cash. When local authorities hold retentions from their main contractors, the monies are de facto guaranteed – they won’t go bust. When the main contractor holds retentions, there is no such guarantee for their sub-contractors.’

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