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Firms hit by delayed public sector payments

Almost 63 percent of engineering services firms were not paid within 30 days by public sector bodies during the second quarter of this year, according to new survey findings from the ECA, the Building Engineering Services Association (BESA), and Select.

The figures represent a decline in prompt payment performance from the first quarter of the year, when 55 percent of businesses were not paid within 30 days by public sector bodies such as local authorities and NHS trusts. In many cases, this directly contravenes government legislation on prompt public sector payment, known as the ‘Public Contracts Regulations 2015’.

In addition, four in 10 firms (39 percent) said over three percent of their turnover is being held in retentions by firms further up the supply chain. Indeed, some £3 billion of cash retentions are held at any one time from construction SMEs by large companies and public bodies. 

Despite the challenging payment climate, turnover among respondents remained strong, with over 81 percent finding turnover had increased or stayed the same in Q2, compared to Q1. Looking ahead to Q3, 87 percent of businesses expect turnover to rise or remain steady.

ECA chief executive Steve Bratt commented: “The engineering services sector continues to show resilience despite the ongoing challenges of late payment and cash retentions, and the increasing challenge of rising material and labour costs.

“With public sector support – including prompt payment – our sector can deliver key infrastructure projects and provide skilled technical employment. This would support government objectives for growth and deliver whole-life asset value to the UK economy.”

BESA chief executive Paul McLaughlin said: “Despite the political turmoil created by Brexit, it is good to see that our sector remains stable and that contractors are reasonably optimistic about the future. Rising costs and extended payment periods continue to create challenges, but the fact that some building engineering firms have improved their profit margins is testament to their ability to manage risk.

“It is, however, vital that the government continues to feed the pipeline of infrastructure work and that companies in our sector hold their nerve. Success will not be spectacular or short-term and it will definitely have to be hard won.”

Newell McGuiness, managing director at Select added: “Late payment can have a devastating effect on engineering businesses, as well as the wider economy. Cash flow is vital to ensure that apprentice recruitment, employment, and up-skilling training continues to grow. In our view, improving the velocity of cash is vital in improving our industry.” 

Despite business optimism, materials prices continue to rise, with seven in 10 businesses (68 percent) reporting an increase. In addition,  47 percent of companies said labour costs had risen.

The sector-wide ‘Building Engineering Business Survey’, sponsored by Scolmore, received 318 responses from Select, BESA and ECA members during July.

The trade bodies are currently working with construction industry stakeholders and the Government to secure a sector deal which will enhance the built environment, while supporting SMEs throughout the supply chain.

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