Payment reporting: a flawed system

The results are in. And, on the surface at least, they are encouraging. The latest CN Payment 100 shows a solid improvement in the time taken by the largest construction firms to pay their subcontractors for their work. CN’s analysis of the top 100 UK contractors shows that the median time it takes to settle a payment is 35.5 days, down from 38 days when we last looked at the figures in December 2021.

The figures reported by the sector appear to be moving relentlessly in the direction of the 30-day target enshrined in the government’s gold-standard procurement terms. Such progress is even more impressive given that the figures include six-month reporting periods ending as late as November, after months of raging materials inflation. Trebles all round!

In reality, many have lost faith that the figures paint anything more than a very crude picture of payment performance. As Electrical Contractors’ Association (ECA) director of legal and business Rob Driscoll says in our Payment 100 feature: “Some are saying payments are getting better, and that payment in construction is speeding up. The reality of industry insolvencies is contradicting this.”

CN‘s research highlights some huge gaps in the data. While the reporting regime created in 2017 requires contractors to report the volume of payments, it fails to measure their value. Thus, an invoice for a half-million pound subcontract can be crowded out by 20 for tiny payments such as a box of pencils. CN makes no suggestion of deliberate dishonesty here — but it is clear that the system is far from perfect.

A government review last year concluded that the system has brought greater transparency to the payment practices and performances of large businesses. That might well be true, but transparency in itself is no guarantee of improved performance — particularly if there is doubt over the figures. In addition, the data fails to distinguish between businesses who pay late as a matter of policy and those who have good reasons due to the economic climate.

The government belatedly seems to accept that the current system is not fit for purpose. It is now consulting on a range of reforms to the rules, proposing that firms have to provide information on the value of payments, retentions and supply-chain payments. This goes a long way to meeting some of the industry’s concerns.

However, one of the regulation’s original aims was to empower smaller firms to make informed decisions about who they work for. Even if the government’s welcome proposals survive without being watered down, the idea that subcontractors will be able to pick and choose their jobs is likely to remain a pipe dream.