Dawnus collapse: Plea to protect smaller firms in supply chain

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Builder workingImage source, Getty Images

Ministers should do more to protect small firms from losing money when big construction companies collapse, an industry body has said.

Late payments are also called "rife" and the Federation of Master Builders (FMB) said it wanted a scheme to protect small suppliers to be extended.

One Caerphilly firm spoke of losing £30,000 after Swansea-based Dawnus collapsed in March.

The creditors' list has yet to be revealed by the administrators.

The Welsh Government said it would consider any proposals to improve its current policy.

Since January last year, ministers have made it mandatory for all construction projects it funds which are worth over £2m to use Project Bank Accounts (PBAs).

These ensure that if large companies like Dawnus go down they do not take the supply chain with them.

Instead of money being paid to the main contractor, which is then responsible for paying everyone else, the money is paid into the PBA and each company involved in the project is paid from that.

But the FMB said it wanted the Welsh Government to go further and ensure the scheme is also used for projects under £2m and by other public sector bodies, such as councils and the NHS.

A Welsh Government spokesperson said: "While we cannot mandate the use of Project Bank Accounts on all public sector construction contracts, we continue to promote the use of PBAs across the public sector as good practice in ensuring fair and prompt payment.

"We are monitoring the effectiveness of the policy and will consider any proposals to improve upon it, including revising the current £2m threshold."

Concerns have increased since the collapse of Dawnus, as well as construction giant Carillion.

Image caption,
Protectorcomms said that fortunately the Dawnus collapse had not had an impact on jobs

Protectorcomms, based in Caerphilly, has been going for 13 years and employs 17 people providing fire alarms and security installations for new developments, including schools and hospitals.

Technical director Lloyd Harding said one of Dawnus's subsidiaries, Legsun - which is one of the companies in administration - were "notoriously bad payers, which is not that rare at this end of the industry".

It got so bad the company stopped working for them at the start of this year but then restarted after a promise it would be paid. It is owed £30,000 and is unlikely to be paid.

Protectorcomms's work included a new school being built in Welshpool, Powys.

Mr Harding said there was "a complete lack of transparency," and it was a "fight" to get money out of bigger firms.

"You never know when the money is going to come through. It's 60 days, end of the month at best. Potentially it can be 90 days and 120 days," he added.

Image caption,
Protectorcomms did up to £10,000 worth of work for Dawnus on this Welshpool school project

Bethan Jones, finance manager, said there were different excuses given for Legsun and Dawnus not paying.

"But when they get offered very big contracts and then they're offering work to you - we had a working relationship with them, we knew they were bad payers, you like to do the work, even if you know you're going to get paid a bit later," she added.

"But unfortunately, they've gone into administration and we didn't get paid."

What help is there for companies caught up?

  • Project Bank Accounts (PBA) ensure businesses receive payments on time for work they have done on Welsh Government projects worth more than £2m.
  • All companies involved are paid directly when work is done rather than the main contractor receiving the money and being responsible for payments to sub-contractors.
  • It has only operated for construction and infrastructure contracts awarded since January 2018 but is now mandatory.
  • Councils, health boards and other public bodies are being encouraged to use PBAs but it is currently optional.
  • Only one project has been financed by the Welsh Government using PBA so far.
  • It has been operating for longer in England and Scotland.

The FMB represents small and medium-sized construction firms.

Ifan Glyn, its Welsh director, said: "Poor payment practices amongst many large construction firms are rife - project bank accounts have the potential to curb some of that behaviour but currently it's only Welsh Government projects over the value of £2m when they are mandated.

"We would like to see that threshold potentially lowered and look at extending that to other public sector contracts and long term rolling it out across the private sector too."

The FMB said it was about getting smaller suppliers paid on time for work already completed.

"Lessons will hopefully be learnt from the collapse of Dawnus but we'll be seeing over the next year or so how effective PBAs are," said Mr Glyn.

"My hunch is it's a good first step but much more needs to be done."

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