MP Esterson speaks out after collapse of Carillion
SEFTON Central MP and Shadow Business Minister Bill Esterson has called for changes in the way small businesses are paid after the collapse of Carillion put thousands of jobs and businesses at risk.
Up to 30,000 businesses across the country could lose a total of £2bn after the company’s collapse, including many in the Merseyside area that have been involved in the building of the new Royal Liverpool Hospital.
Mr Esterson said payment terms of 180 days, which Carillion forced on sub-contractors and suppliers, was unacceptable and that 30 days should be the maximum amount of time a business should expect to wait to be paid when working on a government contract.
Payment terms of 30 days is government policy but the MP said this wasn’t being enforced.
Mr Esterson said: “It is clear that public contract terms were not enforced by the Government and the consequences have been dire for the businesses affected.
“An unacceptable number of small businesses have been left high and dry.
“Last month, an engineering contractor, Vaughan, which has an office in Warrington, went into administration.
“Vaughan was owed hundreds of thousands of pounds by Carillion, and is unlikely to be the last casualty of the Carillion fiasco.
“The next Labour government will enforce the 30-day payment rule and also include late payment as a category of ‘ risky behaviour’ in public contracts, which will allow the government to remove contracts from the offending companies.
“We will also introduce a system of binding arbitration and fine for persistent late payments, similar to the approach taken in Australia.
“And there are other ways to look after smaller firms in construction.
“Project Bank Accounts are already used by Highways England and in the devolved administrations in the UK.
“They ensure payment on time and also give protection in insolvencies like that of Carillion.
“This is because contract monies are paid into a trust rather than to the main contractor.
“PBAs also mean that the money is ringfenced for suppliers in the event of insolvency and are a way of reducing administration costs because they remove the need to chase late payment or to use invoice financing to help sub-contractors with cashflow.
“PBAs are also a way of addressing one of the bug bears in the construction industry: cash retentions.
“Retentions are a proportion of a contract payment, typically 5% or 10% withheld to ensure that minor defects are corrected by sub-contractors.
“But in the construction industry, retentions are little more than a way to help the cashflow of larger firms at the expense of smaller suppliers.
“This was described to me by my constituent, Steve Murray, who runs a highways lighting contractor.
“Steve showed me files going back several years, where he has not been paid retentions and the SEC Group estimates that £3bn is owed at any time in retentions held by main contractors.
“And of course if the main contractor goes bust, the retentions are lost just like any other outstanding debt.
“If everything is paid through Project Bank Accounts, retentions, like other payments can be held in trust and paid in a timely fashion.
“Late payment, retention abuse, lack of protections for unsecured creditors upon insolvency are all major problems, highlighted by Carillion’s failure.
“Already, concerns have been raised about Interserve and the impact on suppliers of the way other major public sector contracts are being run.
“It is time to introduce a fairer contracting system and to replace the reckless speculation which blights the way that public construction contracts have been run.”
Royal Liverpool Hospital is said to be only 90 per cent complete and was recently referred to as a “creaking monument to greed” by the Parliamentary Work and Pensions Committee.
A committee report described a “rotten corporate culture’’ at the construction giant.
Building of the new £335m Royal Liverpool Hospital stalled in February after Carillion went bust.
Construction of the 646-bed hospital was already almost a year overdue when Carillion filed for compulsory liquidation earlier this year, with debts of around £1.5bn.
Bill Esterson MP
A sign outside the stalled hospital