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Is the Fair Payment Charter an end to retentions?

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23/04/2014

Is the Fair Payment Charter an end to retentions?The first action delivered under the Industrial Strategy: Construction 2025 is the new Construction Supply Chain Payment Charter, which was published on 22 April. Developed by the Institute of Credit Management (ICM) and endorsed by the Construction Leadership Council (CLC), the charter sets out the industry’s ambition for 30 day payment terms and no retention by 2025.

This charter is being applauded as major step forward on private sector projects with a commitment to payment terms of 60 days from April 2014, 45 days from June 2015 and 30 days from January 2018. The existing public sector commitment of 30 days is embedded within the Charter and will apply to all central Government and wider public sector projects in line with the Late Payment of Commercial Debts Regulations 2013.

As part of the first wave of clients to sign the charter Berkeley Group, British Land and Barratt Developments became committed to using zero retentions immediately.   Contractors that have signed up have also committed to using zero retentions, unless they are working on a project where retentions are imposed on them by a client.  Signatories to the charter will not be allowed to have supply chain finance schemes that have payment terms longer than those specified in the charter.  Supply chain finance schemes involve suppliers paying a small charge to get paid early, such as those that have been rolled-out by Kier, Balfour Beatty, Carillion and Willmott Dixon.

NSCC President Kevin Louch, a signatory of the charter said:

“Many within the industry, and not just Specialist Contractors, want to see 30-day payment terms on all construction projects. Numerous clients already pay in 30 days and we would like them to make public their commitment to the new Payment Charter and give the industry the confidence to pass that payment through the supply chain. I am delighted to have played a role in delivering the Charter and moving our industry forward on this fundamental issue.”

The ambition to eliminate retentions is in recognition of just how vital cash flow through the supply chain is. The Charter requires that cash retention is either not withheld at all or that any arrangements for retention with the supply chain are no more stringent than those implemented by the client in the Tier 1 contract.

The Charter also sets out clear commitments in respect of ‘pay less’ notices, contract variations, electronic payments and Supply Chain Finance schemes, all of which are integral to payment practices in the industry.

BWF CEO, Iain McIlwee commented

"The BWF as a proud member of the NSCC has long been an active supporter of their Fair Payment Campaign and this is definitely a step in the right direction following some hard hitting campaigning.  As a sector we are trying to capitalise growth and some of the reprehensible payment practices we see in the construction sector significantly damage our ability to invest and dent both confidence and even ambition.  The supply chain needs to work together more effectvely and this can only be done through trust, which is built on fairness, honesty, transparency and delivery.  The clear statement from the CLC in publishing such a transparent and forward looking Charter is a significant step towards the vision for construction in 2025 as set out in the Industrial Strategy.  It is not, however, the end of the rainbow, at the moment it is a piece of paper, there is much detail to follow on monitoring and hopefully sanctions that will apply if companies fall short of their commitments."

Suzannah Nichol, chief executive of the National Specialist Contractors Council, said “transparency” about firms’ payment practice would need to be a cornerstone of the monitoring and enforcement of the charter.  She added: “Every single person in the industry can turn around [to their client] and say, ‘I want to be paid in 30 days and the industry believes that that is right and fair.’”

You can read a copy of the Fair Payment Charter here

Click here for BWF Members Guidance on Credit Control

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