It was reported this morning that Kier are considering charging subcontractors 1.5% of their package turnovers to become closer strategic partners. This is not especially new. It has happened in the retail industry. It has happened in our industry before, both with contractors and clients charging under a variety of guises to exploit their position of power. But when it is a scheme suggested by a company that is not in the rudest of health, it is a bit of a worry.
Fresh on the back of Interserve, Dawnus and before that Carilion, this story, if true, highlights what a precarious industry we are in and how the current model places unfair and unsustainable pressure on sub-contractors. It is them that end up bearing the majority of risk. And it is their work and time that funds the cash flow of the industry. It is them that are the last set of mouths to be fed as the money trickles down from Funder to Client to Main Contractor and then to the specialists. Inexorable delays. Excuses. Remedying defects. The time drags on and all of the time, it is the money owed to the sub-contractors that keeps the machine running.
It was Andy Steele, the CEO of Osborne, that said that the industry “can’t afford to tackle late payment”. And he is right sadly, because the cashflow model of our construction industry is being put under dual pressure from lenders retrenching and leaving already under capitalised main contractors gasping for breath and clients becoming increasingly unwilling to forward fund the main contractors for elements of work.
I’m not going to bleat on about late payment – it is well documented elsewhere. But schemes that effectively force a sub-contractor to discount their work in return for prompt payment seem intrinsically unpalatable to me.
We need a more collaborative model for our industry. We need to move away from the mistrust and abuse of negotiating power that happens at each turn. Earlier engagement, greater transparency, contractual forms that share risk rather than place it. It is in the gift of the industry to fix it but the current model has too many vested interests to do so.
After all, the sub-contractors already face enough “taxes” just to be in business – countless accreditations; certifications; trade body memberships; mandated scheme membership and so on. I wonder how much the average specialist is forced to pay in terms of these “fixed overheads” just to be in the game?
I obviously know nothing (as someone kindly pointed out after my post on Interserve) but it seems to me that the entire house of cards is being propped up using sub-contractors as a bank.
This blog was written by our CEO, David Stapleton.