Catalysts for change
"It’s been a tough week for the construction industry. Not only did we discover more about the awful management practices at Carillion, but Dame Judith Hackitt’s final report on the Independent Review of Fire Regulations and Fire Safety did not pull any punches when it came to our sector’s working practices: Ignorant; indifferent; inadequate.
The Carillion collapse and the Grenfell disaster have shed a harsh light on some of the worst aspects of construction. One thing they have in common is that they show the negative impacts of poor payment terms. Dame Judith Hackitt clearly identifies this problem in her report: “Payment terms within contracts (for example, retentions) can drive poor behaviours, putting financial strain into the supply chain.”
And of course, we know that many of Carillion’s smaller sub-contractors were dragged under due to non-payment of monies owed for many months beyond reasonable expectations, creating job losses and ending apprenticeships.
Most people in the construction sector know that poor payment practices have created a precarious business environment – even without the added pressures of a recession. This has left us with an industry where training and education are always likely to be cut due to tightened budgets. But product development is now very fast and regulations and guidance are updated regularly, so training is exactly what we need.
What’s more, Dame Judith points out that poor payment practices mean cash flow issues, which in turn cause ‘sub-contractors to substitute materials purely on price rather than value for money or suitability for purpose.’
We all know that capital expenditure is generally prioritised over operational costs; that cheaper products will be substituted unless someone in the supply chain fights to keep the specification intact. This leads to less efficient buildings that are almost inevitably more expensive to operate in the long-term. The Hackitt report goes further, effectively saying that in the case of Grenfell, poor payment practices were a factor in creating the circumstances for disaster.
It is to be hoped that as government hears a second reading of the Aldous Bill to improve payment security for the construction industry, these issues are top of mind. While not a cure-all for the industry’s problems, better payment terms will create more opportunities for better behaviours and best practice to take root and flourish."
Karen Fletcher
