Scotland business

Public bodies 'withholding cash from firms', say contractors

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Public bodies are withholding £120m of debts owed to private construction firms, according to an industry body.

The Specialist Engineering Contractors (SEC) Group Scotland said the main reason for withholding the cash was to improve the public bodies' working capital.

But it warned the delays were putting small firms at risk of insolvency.

The Scottish government said it was committed to ensuring firms were paid on time.

SEC says its members deliver nearly 40% of the £4bn spent annually by the public sector in Scotland.

Its research suggested "little effort" is made to ensure that secondary or sub-contractors get the same treatment as primary contractors, who are paid within 30 days.

Nearly three-quarters (72%) of public bodies and almost two-thirds (64%) of universities make no attempt to monitor supply chain payments, according to SEC.

'Depressing reading'

Newell McGuiness, managing director of SEC member Select, said: "This information makes very depressing reading.

"It suggests that while organisations which depend on money from the public purse would appear on the surface to be backing moves against late payment, the reality is somewhat different.

"The Scottish government has wholeheartedly endorsed industry's appeals to help small firms by the simple expedient of prompt payment.

"It now needs to enforce that across the bodies for whose funding it is responsible."

SEC has called for a common start date for the 30-day payment period for primary and secondary suppliers and mandatory project bank accounts so that the supply chain can be paid directly.

Ombudsman call

Organisations which fail to pay their supply chain should be excluded from public-sector work for 12 months and an ombudsman should be appointed to monitor payment practices, SEC said.

Eddie Myles, chairman of SEC Group Scotland, said: "The regulator or ombudsman must have the power to challenge poor practices and to order those public bodies who don't meet the standards to change their ways.

"There is an expectation in Scotland that construction SMEs (small and medium-sized enterprises) will invest in skills and training and smart technologies with the efficiencies created directly benefiting the public sector.

"But this is not achievable unless robust measures are adopted now to improve cash flow all the way through the supply chain."

A Scottish government spokeswoman said it was "committed to ensuring that procurement guidelines on pay are adhered to and that companies are paid on time, because we understand how important this is to the financial future of smaller firms."

She added: "The Scottish government has been co-ordinating trials of Project Bank Accounts (PBAs), which are ring-fenced accounts that payments can be made directly and simultaneously by a client to contractors and sub-contractors, improving cash flow through the supply chain.

"Our focus on prompt supply chain payment will continue, and we will work closely with our delivery partners in other pilot projects to build positively on what we have learned through our experience.

"We are absolutely committed to ensuring every pound spent on infrastructure investment goes as far as possible to support businesses and jobs, building greater resilience into the broader Scottish economy."

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