During an inquiry convened by Debbie Abrahams MP, to investigate the effects of late payments by large businesses on SMEs, the panel were shocked to hear from one construction industry expert that many sub-contractors are so starved of cash that they are cutting corners in their work creating a legacy of ‘sick buildings’ that ‘will result in the deaths of people’.
Steve Sutherland of Dortech, a specialist commercial glazing contractor based in Huddersfield, told the MPs, “I feel very strongly about this…we’ve got the situation where I’m absolutely convinced sick buildings are being built and creating a major legacy in this country. Some of the buildings…I’ve seen being built are shocking, are dangerous, and will eventually result in deaths of people.” Asked if he could give some examples to back up his claim Steve responded: “I can. I can give you loads.”
Showing the MPs a photograph of a completed building in a city in the north of England his company was contracted to carry out maintenance work on, following the failure of the original contractor, Steve said, “Each piece of glass on there weighs approximately 200 kilos and there is a formally approved method of securing that glass in place. None of the formal procedure for securing that glass in place have been followed. None of them. On this building we actually (had to) put on the equivalent of 300 metres of glass fixings and pressure plate where it’d been missed off (to secure the glass). And here on the 5th floor you can see that’s how the glass should be secured round its perimeter. The sub-contractors, because they weren’t being paid, presumably by the main contractor, couldn’t afford (to do the work); or their supplier was not prepared to supply the material, so they were cutting lengths and just stitching the glass in.”
After giving evidence at the late payments inquiry Mr Sutherland added, “This is a problem I have seen repeated in cities and towns across the north of England. But I have to be very clear that every time we have pointed out problems with the standard of work in a building the main contractors have always reacted immediately to put the work right without skimping on the cost.
“But what’s shocking to me, and as clear as day, is that the reason many building jobs are having corners cut is the fact that the small sub-contractors are not getting paid on time; are having payments retained and the main contractors are using every trick in the book to claw money back for themselves. As the economy dried up the big contractors started fighting for work and quoting prices below the cost of the job. So from that point on they do everything they can to claw back the money they have lost by screwing the small sub-contractor companies.”
In reaction to Mr Sutherland’s revelations inquiry chair and creator of the Be Fair, Pay on Time campaign*, Debbie Abrahams, MP for Oldham East and Saddleworth, said, “I think we all know that the obvious result of a late payments culture is misery for many tens of thousands of SME owners, their staff and the knock on effect to their families but Steve’s testimony today has added a whole new dimension to the problem. Construction is one of the industries that is really being affected badly by the practice of late payments and it seems now that it could even be putting people’s lives at risk.
“Rather than viewing fair payment terms as part of their corporate social responsibility (CSR) many large companies are deliberately paying late or extending their pre-agreed payment terms simply because they have the power to do so.”
Another SME contributor was Steve Paul, Managing Director, SDP Floor Screeds Ltd who told the inquiry how main contractors had withheld payments totalling £1.2m sending his company, which he had built up over 25 years, into administration. He said, “It’s organised crime really, they know what they are doing and they are playing with us. They hung me out to dry.”
*6. In June 2011, the ‘Be Fair – Pay on Time’ campaign was launched by Debbie Abrahams MP to raise awareness to the issues associated with late payments to SMEs after she had been contacted by businesses in her Oldham East & Saddleworth constituency. In collaboration with the FPB, FSB and ICM in July 2012, Ms Abrahams contacted the 75 FTSE 100 companies not signed up to the PPC urging them to do so; the number of signatories more than doubled. In October 2012, the Business & Enterprise Minister wrote to the FTSE 350 urging them to sign up to the PPC as well and by January, 54 more had signed up to the PPC. However, alarmingly prior to signing up to the PPC some companies increased their payment terms in some cases without negotiation or notice, and by up to 3 times previous contract terms (e.g., 30 to 75 days). Another development in October last year was the support of Supply Chain Finance (SCF) schemes – a large company informs a bank that that an invoice has been approved for payment; the bank then offers a 100 per cent immediate advance to the supplier at lower interest rates, knowing the invoice will ultimately be paid by the large company.