Last edited 11 Aug 2016

Construction supply chain payment charter

Contents

[edit] Introduction

Construction 2025, the government's long-term vision for the future of the construction industry, cited equitable financial arrangements and certainty of payment as critical success factors for the industry and proposed a need to '...create conditions for construction supply chains to thrive by addressing access to finance and payment practices.'

In response to this need, the government launched a new Construction Supply Chain Payment Charter on 22 April 2014. This built upon payment provisions set out in the Housing Grants, Construction & Regeneration Act 1996 (as amended); the Late Payment of Commercial Debts Regulations 2013; the Fair Payment Charter; Cabinet Office Procurement Information Note 2/2010; and the Prompt Payment Code.

Announced by the Construction Leadership Council, which reports to the Department for Business, Innovation & Skills (BIS), the Charter was prepared by the Institute for Credit Management following consultation with clients, contractors, suppliers and consultants.

The Charter set out 11 fair payment commitments:

  1. We will make correct full payment as and when due for all work properly carried out, or products supplied, in accordance with the contract. We will ensure any withholding of payment due to defects or non-delivery is proportionate, and clearly, specifically and demonstrably justified in line with the arrangements set out in the contract.
  2. We will not deliberately delay or unreasonably withhold payment.
  3. For all new contracts we will ensure that payments are made to our supply chain not more than 60 calendar days from the end of the Calendar month in which the work is carried out or products are supplied. From June 2015 we will ensure that payments are made to our supply chain not more than 45 calendar days from the end of the calendar month. From January 2018 that will decrease to not more than 30 days.
  4. Public authorities are already required to pay within 30 calendar days. On central Government contracts, payment will be made to Tier 1 within 14 days, to Tier 2 within 19 days and to Tier 3 within 23 days of the due date, which will be 7 days after the common assessment or valuation date established by the client in the Tier 1 contract.
  5. We will either not withhold cash retention or ensure that any arrangements for retention with our supply chain are no more onerous than those implemented by the client in the Tier 1 contract. Our ambition is to move to zero retentions by 2025.
  6. We will issue any 'pay less' notices at the earliest opportunity and no later than 7 days prior to the final date for payment.
  7. We will have processes in place to enable the effects of contract variations to be agreed promptly and fairly and payments for such variations to be included in the payment immediately following the completion of the varied works.
  8. We will make payments electronically unless agreed otherwise.
  9. We will use Project Bank Accounts on central Government contracts unless there are compelling reasons not to do so and on other contracts where appropriate.
  10. Where Supply Chain Finance schemes allowing members of the supply chain to secure earlier payment are offered, we will not impose fees or costs for receiving payment within the terms set out in the contract.
  11. We will adopt a transparent, honest, and collaborative approach when resolving differences and disputes.

Clients, contractors and sub-contractors in the public and private sector could sign up to the Charter. However, when it was launched, just nine companies had committed to adopting it. In addition, concerns were expressed about how the charter would be policed and enforced, and it was suggested that with no accompanying legislation, it may have little effect.

The Charter itself simply stated that 'By becoming a signatory to this Charter, an organisation agrees to apply the fair payment commitments in its dealings with its supply chain, to be monitored for the purposes of compliance by reporting against a set of agreed key performance indicators (KPIs), and to consider the performance of its supply chain against the agreed KPIs when awarding contracts.'

The Chartered Institute of Credit Management (CICM) was tasked with devising a method for monitoring compliance and devising KPIs but no details were ever published.

In December 2015, Construction Manager reported that a revised Charter was expected to be launched early in 2016, but that this was not universally supported.

In August 2016, the revised Charter was published to which 19 organisations had signed up.

The revised Construction Supply Chain Payment Charter commits that:

Construction Supply Chain Payment Charter signatories agree that on all new construction contracts [1] they will meet the fair payment commitments set out below:

  1. We will make correct full payment as and when due for all work properly carried out, or products supplied, in accordance with the contract. We will ensure any withholding of payment due to defects or non-delivery is proportionate, and clearly, specifically and demonstrably justified in line with the arrangements set out in the contract.
  2. We will not deliberately delay or unreasonably withhold payment.
  3. For all new construction contracts we will ensure that payments are made to our supply chain not more than 45 calendar days from the end of the Calendar month in which the work is carried out or products are supplied. From January 2018 that will decrease to not more than 30 days.
  4. Public authorities are already required to pay within 30 calendar days [2]. On central Government contracts, payment will be made to Tier 1 within 14 days, to Tier 2 within 19 days and to Tier 3 within 23 days of the due date, which will be 7 days after the common assessment or valuation date established by the client in the Tier 1 contract [3].
  5. We will either not withhold cash retention or ensure that any arrangements for retention with our supply chain are no more onerous than those implemented by the client in the Tier 1 contract. Our ambition is to move to zero retentions by 2025.
  6. We will issue any 'pay less' notices at the earliest opportunity and no later than 7 days prior to the final date for payment [4].
  7. We will have processes in place to enable the effects of contract variations to be agreed promptly and fairly and payments for such variations to be included in the payment immediately following the completion of the varied works.
  8. We will make payments electronically unless agreed otherwise.
  9. We will use Project Bank Accounts on central Government contacts [5] where specified by the client.
  10. Where Supply Chain Finance schemes allowing members of the supply chain to secure earlier payment are offered, we will not impose fees or costs for receiving payment within the terms set out in the contract.
  11. We will adopt a transparent, honest, and collaborative approach when resolving differences and disputes.

Notes

NB You must be a signatory to the Prompt Payment Code before you can apply to become a signatory to the Construction Supply Chain Payment Charter.

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