Osborne CEO: Industry ‘can’t afford’ to tackle late payment

Osborne talks to Construction News.

“Osborne chief executive Andy Steele has said the industry “can’t afford” to tackle late payment under the current market climate.

In an interview with Construction News, Mr Steele said a “perfect storm” had formed for many contractors due to the current financial squeeze and pressure from government to improve payment practices.

Mr Steele stated that the financial sector has had a “change in appetite” towards construction, pulling away from its exposure to the sector, making access to finance tougher for contractors.

Amid this financial squeeze, government has cracked down on late payment practices. All companies with turnover greater than £36m and 250 employees or more are required to submit their payment practice data to government.

But Mr Steele says that the industry “can’t afford” to improve its payment practices while banks are pulling away from financing construction companies.

This is because in order to pay your supply chain earlier would require companies to take out loans to fund this, as historically, contractors have “held the cash to get their business models to work”, he said.

This has created an “impossible situation” for a lot of the industry: “Those two dynamics do not work together,” he said.

Although the Osborne boss doesn’t doubt that companies want to pay their supply chain quicker – “and quite rightly, they should be paid quicker” he said – it is not possible to do so at present.

“You can’t just dictate down to companies that you have to suddenly comply with these changes in your payment practices, because the industry can’t afford it,” he said. “It can’t do it in one go.”

Mr Steele said the business model “can’t change overnight” and that there must be “a realistic understanding from government over the state of the construction industry today”.

He added both public and private sector clients need to start paying main contractors earlier.

“If best payment practice is 30 days, then money from the customer has to come earlier than 30 days,” the Osborne chief said.

He added large tier ones with big borrowing requirements who have historic poor payment performance are under a “huge amount of pressure” and could face difficulties.

But he added it is in “nobody’s benefit” if these big companies “get into trouble”.

According to government data on late payment, Osborne takes an average of 47 days to pay its suppliers.

Analysis of the top 20 contractors by CN found it took the same time (47 days) for companies to pay their suppliers.

Mr Steele admitted that the company could do more to lower this figure.

“There are ways that we can improve our payment performance,” he says. “We have implemented changes to improve it: we’ve adopted web contractor an online payment system used to manage subcontractor invoices] so we can have full transparency of payment.”

This article was written by and featured in Construction News