MP Ester­son speaks out af­ter col­lapse of Car­il­lion

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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

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