Current cashflow problems in the UK construction engineering industry are unsustainable, according to The Specialist Engineering Contractors’ (SEC) Group – which represents small and medium enterprises (SMEs) in the sector, and acts as an umbrella body for trade associations such as BESA and SNIPEF.
The SEC Group says that contractors are having to rely more and more on their directors for funding, given the problems of late and lengthy payment periods and lack of access to reasonably priced lines of credit. Directors lent their construction businesses £38 million in 2015/16, a significant increase on the £29.7 million lent in 2013/4.
“With SMEs now relying more and more on their directors for their liquidity, the cashflow position in the industry is now critical,” says Professor Rudi Klein, SEC Group CEO, who describes the figures as extremely worrying.
This is against the background of the poor state of the balance sheets of the UK’s largest construction firms recently highlighted by the debt-ridden problems faced by Carillion (the second largest construction company).
Klein adds: “These companies are taking longer and longer to pay their supply chains, with SMEs having to spend the bulk of their contract values up front before receiving any payment.”
The SEC Group is pressing the Government to introduce legislation to mandate the use of project bank accounts across the whole of public sector construction, ring-fence cash retentions, and make 30 day payments mandatory.
Public bank accounts (PBAs), where monies are paid by public sector clients directly to firms in the supply chain via a ring-fenced bank account, are already used in Northern Ireland and Scotland, and by some government departments and agencies such as Highways England.
