Memorandum submitted by the National Specialist
Contractors Council
1. Please find attached a submission from
the National Specialist Contractors Council (NSCC), the umbrella
organisation representing Specialist Building Contractors operating
in the UK Construction Industry. It is these trade contractors
that employ and train the construction workforce and carry out
the majority of construction work on site. NSCC represents 29
specialist trade organisations which collectively represent almost
8000 Specialist Contractors. The 29 specialist trade organisations
are at the end of the submission.
2. The NSCC submission covers three key
issues:
A. Payment Practices in the UK Construction
Industry.
B. Integration of the supply chain.
C. Skills in the Specialist Sectors.
3.A PAYMENT PRACTICES
IN THE
UK CONSTRUCTION INDUSTRY
(a) There is a deep-seated culture among
main contractors of delaying, reducing or simply avoiding payment
to their sub-contractors.
(b) This culture is driven by their business
models as cash managers which in turn are driven by the procurement
process in the industry; this is outdated and does not recognise
the structural changes of the last 30 years.
(c) Main contractors enjoy a degree of dominance
and power which is no longer merited by their contribution to
and investment in the construction process.
(d) In the modern construction industry
it is Specialist Contractors who are the real engines of change.
They are major investors, employing the majority of the skilled
workforce, training most of the apprentices, investing in plant,
process improvements and manufacturing facilities, driving research
and development, and implementing the improvements in health and
safety which everybody wants to see. Most of these businesses
are Small Medium Enterprises (SMEs) with a desire to grow and
improve; they cannot do this effectively if they are starved of
cash. It is a sad but unavoidable fact that when a business is
starved of cash, the first things to suffer are training, R &
D and investment in both new staff and equipment.
(e) The development of the industry depends
to a large extent on the investment, commitment and ingenuity
of the thousands of SMEs that make up the specialist sector. Improving
their certainty of timely and correct payment can only help to
boost their contribution.
(f) Real improvement will only come through
a change in culture in the industry—this needs to be brought
about by a combination of coercion and encouragement.
(g) Legislation is a necessary first step.
The current position is simply too easy to exploit. History shows
us that voluntary reform is at best slow and at worst non-existent:
— The DTI proposals for amending the
Construction Act (in principle) should be adopted as they will
create greater clarity as to how much is owed to whom and when
it is payable. This will allow payees (of all tiers, not just
first line sub-contractors) to use the remedies of adjudication
and suspension more readily when they are being unfairly treated.
Whilst a Fair Payment Charter has been introduced by OCG, the
Construction Act is the underpinning legislation.
(h) Clients also need to provide a more
positive incentive to encourage cultural change. In principle:
— Contractors should be given a realistic
chance of enhancing profits through good performance.
— Clients should recognise the reality
of the amount of risk that a contractor can sensibly take with
a profit margin of 1-3%.
— The supply chain should be "flattened"
to encourage greater collaboration between key suppliers/sub-contractors,
contractors, consultants and clients. This can be done through
formal "partnering" but can be equally effective if
the client leads the process and uses it as a tool for ensuring
best practice.
(i) The Fair Payment Charter adopted by
the Public Sector Construction Clients' Form (PSCCF) must be implemented
and enforced from 1 January 2008:
— Public sector clients should be asked
to publicly affirm their adoption of the Charter throughout the
supply chain.
— Main contractors and others in the
supply chain that do not implement the Charter must be called
to account and precluded from future public sector contracts.
— Public sector contracts should consider
allowing a profit margin to contractors greater than the 2.5%
which is currently typical.
— Public sector clients should play
a more active role in the project management, in particular more
regular communication with the supply chain. Greater transparency
across the tiers promotes trust and understanding, which are prerequisites
for any meaningful performance improvements.
(j) A fundamental issue in relation to payment
practices is the continued practice of withholding a retention
from Specialist Contractors within the supply chain. Retention
is a contractual mechanism whereby a proportion of all payments
made to a main contractor is held back by the employer or client
until expiry of the defects liability period of the main contract
(usually 12 months after the completion of a project). In turn
the main contractor holds a retention (usually between 3-5%) against
his specialist trade contractors (often referred to as subcontractors).
This results in a substantial amount of money withheld from subcontractors
at any one time.
(k) The first half of the retention is usually
paid to the subcontractor upon practical completion of the subcontract,
ie when he has completed his element of the works. The second
half is retained until issue of the final certificate or making
good defects certificate, usually 12 months after the practical
completion of the whole project. For subcontractors who carry
out work early on in the project, eg piling, this can involve
a wait of some considerable time (years on many projects).
(l) On many occasions retention monies are
not automatically released to Specialist Contractors even when
due. A substantial amount of monies continues to be withheld and
can be extremely difficult to retrieve. A recent NSCC survey into
payment practices in the construction industry demonstrated that
£950 million is withheld from Specialist Contractors in retention
monies; yet only 27% of contractors are ever requested to return
and rectify defects.
(m) A Trade & Industry Committee published
a report into the practice of retentions in 2002 and stated:
"Given the doubtful benefits and the clear
disadvantages of retentions, it would obviously be in everyone's
interest for such an inefficient—and frequently harmful
practice to disappear".
(n) Despite the Select Committee report
and the alternatives to retentions that are available, ie retention
bonds, retentions are prevalent within the industry and Specialist
Contractors continue to suffer cash flow problems that frequently
result in the demise of long serving contractors.
(o) The very existence of retentions within
the construction industry has a huge impact upon NSCC members,
Specialist Contractors within the construction industry, the majority
of whom are small and medium sized enterprises (SMEs) and the
practice of cash retentions should be eliminated throughout the
supply chain.
(p) The PSCCF Fair Payment Charter requires
retention practices to be mirrored through the supply chain; as
the majority of public sector clients do not withhold a cash retention,
enforcement of the Charter would go some way to achieving the
elimination of cash retentions.
4.B INTEGRATION
OF THE
SUPPLY CHAIN
(a) Many of the payment issues within the
construction industry arise due to a lack of trust between the
various parts of the supply chain, which in turn is a result of
a lack of involvement from the supply chain.
(b) Specialist Contractors are the main
source of technical expertise within the industry yet are still
appointed too late to contribute to the design and development
stage of a project therefore missing the opportunity to input
their knowledge and skills and improve the construction process
in terms of process, quality and cost.
(c) The industry, in Accelerating Change,
has set a target of 50% of projects being carried out by integrated
teams by the end of 2007. Due to a lack of engagement by clients
and main contractors this target will not be achieved and a great
opportunity for the public sector to realise substantial savings
is being missed, and the best practice, usually learned from the
public sector making improvements, is not being transferred throughout
the industry.
(d) If the construction industry and its
clients wish to see a real improvement in efficiency, quality
and costs then the early involvement of the specialist trade contractors
and the integration of the entire supply chain must be implemented
as standard practice.
(e) Central government has pledged that
integrated teams are the preferred method of working and this
should be enforced wherever public funds are used for construction
projects.
5.C SKILLS IN
THE SPECIALIST
SECTOR
(a) Specialist trade contractors are the
main employers of the skilled construction workforce and with
support from ConstructionSkills, investment in training in the
specialist sector is at long last increasing. However more still
needs to be done.
(b) Specialist apprenticeships are being
developed in some of the specialist trades yet as these do not
follow the traditional apprentice route, due to the more focused
skill base required, funding has to be arranged on a case by case
basis.
(c) There is a shortage of specialist assessors
for many trades; this is due to a variety of reasons one of which
is the lack of investment in the assessor infrastructure. NSCC
is encouraging the training of specialist assessors and currently
has to apply for funding for each sector to train a sufficient
number of assessors. This issue is seriously inhibiting the progress
towards achieving a fully qualified workforce by 2010.
(d) A barrier to many Specialist Contractors
taking on trainees or apprentices is the lack of forward orders,
the industry still looks very short term yet an apprentice or
trainee requires a long term investment which many SME employers
find difficult to commit to. Clients in both the public and private
sectors can help to overcome this problem by working more closely
with their supply chains to plan work over the coming years. Integrated
supply chains give Specialist Contractors the confidence to invest
long term in the training of their workforce.
(e) The NSCC is working towards achieving
a fully qualified workforce by 2010. Clients in the public and
private sectors have committed to using contractors that hold
CSCS carded workforces, yet this is still not happening in practice,
which is causing consternation amongst the Specialist Contractors
that have invested in qualifying their workforces.
6. The UK construction industry is responsible
for 9% of the GDP with a turnover of £114 billion, and is
the employer of almost 3 million people. It is an asset to this
country and is capable of contributing even more if the industry
supply chain is provided with the opportunity to deliver workmanship
of the highest quality. 90% of construction work is carried out
by the supply chain, the organisations and people we represent.
Without Specialist Contractors the industry would not be capable
of delivering the buildings and infrastructure society requires
to function. It is vital that every part of this substantial industry
is provided with a business environment that enables it to grow,
develop and deliver.
| NSCC MEMBER ORGANISATIONS
| |
| ACIFC | Association of Concrete Industrial Flooring Contractors
|
| AIS | Association of Interior Specialists
|
| ASA | Association of Sealant Applicators Ltd
|
| ASFP | Association for Specialist Fire Protection
|
| ATLAS | Association of Technical Lightning & Access Specialists
|
| BBSA | British Blind and Shutter Association
|
| BDA | British Drilling Association
|
| CFA | Contract Flooring Association
|
| DSA | Drilling and Sawing Association
|
| FASET | Fall Arrest Safety Equipment Training
|
| FBSC | Federation of Building Specialist Contractors
|
| FeRFA | Resin Flooring Association
|
| FPS | Federation of Piling Specialists
|
| FRA | Flat Roofing Alliance
|
| GGF | Glass and Glazing Federation
|
| INCA | Insulated Render & Cladding Association
|
| MAC | Mastic Asphalt Council
|
| NASC | National Access & Scaffolding Confederation
|
| NFRC | The National Federation of Roofing Contractors Ltd
|
| NFTMMS | National Federation of Terrazzo Marble & Mosaic Specialists
|
| PDA | Painting and Decorating Association
|
| RIDBA | Rural & Industrial Design & Building Association
|
| SAEMA | Specialist Access Engineering and Maintenance Association
|
| SAPCA | Sports and Play Construction Association
|
| SFGB | Stone Federation Great Britain
|
| SMWBA | Scottish Master Wrights and Builders Association
|
| SPRA | Single Ply Roofing Association
|
| SWA | Steel Window Association
|
| TTA | The Tile Association |
May 2007
| 
