The National Specialist Contractors Council (NSCC) has described as ‘grossly unfair’ Carillion’s unilateral decision to increase its maximum payment terms to its supply chain from 65 days to 120.

The move is part of what Carillion describes as its ‘Early Payment Facility’, under which if specialist contractors want to be paid in less than 120 days they have to pay for the privilege.

The move is part of a plan by Carillion to pay its suppliers directly through a bank using a financial mechanism known as ‘reverse factoring’. If specialist contractors want to be paid earlier than 120 days, they will have to pay a charge to the bank. How much they pay is set out on a sliding scale depending on how early they wish to be paid.

Carillion claims that its Early Payment Facility is in support of the Government's Supply Chain Finance Initiative, which was announced by the Prime Minister in October last year. It says the scheme provides ‘genuine improvement in liquidity and cash flow management for [its] supply chain’. The NSCC believes the only beneficiaries will be Carillion and its bankers.

Under the Late Payment of Commercial Debts Regulations 2013, which came into force on 16 March, businesses are expected to pay their suppliers within 60 days on private contracts (30 days on public sector contracts) and will be liable to pay interest (at 8% over base rate) if they have not paid within ann agreed period. If a payment period of more than 60 days is agreed in the contract, the Regulations say it must not be grossly unfair to the supplier of goods or services (including sub-contractors) but that interest will only start running from the expiry of that longer period.

NSCC believes the implementation of 120-day payment terms by tier one contractors is ‘grossly unfair’. It says it is a clear “deviation from good commercial practice” in the construction industry, where central Government departments have introduced a contractual requirement for payment within 30 days down to Tier Three of the supply chain and the JCT standard forms of contract set payment terms of 14 days from the due date in the main contracts and 21 days from the due date in sub-contracts.

A recent survey undertaken by Constructionline revealed that nearly a third of Specialist Contractors have refused to work for a main contractor because of the poor payment practices. However, it is difficult for them to negotiate on payment terms with main contractors and they have little or no practical choice other than to accept what is proposed or they risk losing the work.

NSCC has written to the Government regarding this issue and the Fair Payment Campaign will continue to promote timely payment throughout the supply chain to improve the quality and delivery of construction projects. A wide range of guidance and support for specialist contractors on getting paid can be found at www.fairpaymentcampaign.co.uk.

If you are experiencing payment problems, you can report them in confidence to NSCC by completing the Fair Payment – Feedback Form.