A damning investigation has found that construction suppliers and their sub-contractors are being subjected to illegal practices by almost six out of ten local authorities.
An investigation by the Electrical Contractors’ Association (ECA) discovered that 59 per cent of English local authorities are breaching the Public Contracts Regulations 2015.
By doing so they are putting many smaller organisations at risk, as they struggle to survive amidst cash flow problems.
Under a Freedom of Information request, the ECA asked 320 English local authorities (LAs) about their payment practices to establish the level of illegal purchasing behaviour taking place. Responses received from 137 LAs, revealed just over half (52 per cent) of councils have still to put in place a contractual requirement for payments to filter through the supply chain within 30 days, as required by law. A further 7 per cent were unable to confirm whether or not they ensured this requirement was in place.
Worryingly, 28 per cent of respondents claimed that they ‘have not and will not’ be building in a contractual requirement to ensure the supply chain is paid on time and 59 per cent admitted they have no intention of monitoring supply chain payment.
Just 9 per cent of respondents confirming that their supply chain is being paid within 30 days, in line with the law and the spirit of the law.
ECA director of business and external affairs Paul Reeve said: “Our survey shows that many local authorities continue to ignore the legal requirements for prompt public sector payment along the supply chain. It’s particularly disappointing when one considers that doing so would support SMEs in their local areas.
“We have seen next to no improvement among many local councils since the ECA conducted a similar investigation last year. The government has issued regulations to help smaller businesses, but they are being viewed as optional by far too many councils, and too many are opting out.
“What we need is for government to approach those who flout the law and to make it harder for them not to comply, than to comply. The government could impose penalties to achieve this.”
Adam Davis, a Partner who specialises in providing legal advice to construction and engineering firms, said: “Late payment disputes cause misery for any business but for small businesses who are often operating on a very tight cash flow, late or missed payments can often mean the difference between survival and ceasing trading.
“The fact that local authorities appear to be flouting laws which are in place to safeguard their suppliers is particularly worrying and our advice to anyone affected is to seek prompt legal advice.
“Palmers offers a Commercial Debt Recovery Scheme to help businesses manage the recovery of their debts and to keep legal costs proportionate. Often a strongly worded solicitor’s letter is all that is needed to recover the outstanding payment but where this fails mediation and other alternative dispute resolution (ADR) procedures can be effective in recovering outstanding business debts. As a last resort, formal recovery action can also be taken.”
For support with business disputes and alternative dispute resolution as well as legal advice on debt recovery, please contact us.