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Supply chains at risk

 

There could be more casualties among construction supply chains in Scotland as the industry wrestles with “an unprecedented sequence of problems”.

A fall in major public infrastructure projects, prolonged severe weather, the Carillion collapse and persistent economic uncertainty are affecting order books and compounding cash flow problems across the industry said Derek Forsyth, head of recovery at Campbell Dallas. And he warned of further business failures, particularly among smaller contractors.

Forsyth: ‘Smaller firms are vulnerable.’

“This is probably the most challenging period I have known for the construction sector,” he said. “The industry is beset with an endemic cash flow issue that has never really been resolved. Businesses will retain cash for as long as possible, which tends to affect smaller companies trading from one job to another. Coupled with fewer contracts and the wider economic and weather issues, many companies are facing a very tough time.”

Forsyth said the Carillion collapse had once again exposed the vulnerability of smaller firms down the supply chain to the failure of a principal contractor. “Given that payment can routinely take several months, sometimes six months or longer, it is unsurprising that banks are unwilling to increase borrowings when payment terms and compliance are so uncertain.  Perhaps the banks need help from Government to ease the cash flow problem.”

There is a pressing need for intervention to ensure that smaller businesses are paid in a timely manner he said. One option could be an independent body to manage ‘a construction cash flow facility’ to provide greater certainty in the payments process.

Campbell Dallas advises contractors to walk away from deals that will affect short-term cash flow. Other protection measures include ensuring all terms and conditions are documented and legally binding, and managing their own sub-contractors “efficiently and fairly”.

Forsyth concluded: “It is important that key stakeholders involved in Scotland’s construction industry work together to ease these problems and provide support to any businesses affected by badly-managed contracts and a lack of cash. Companies may have plenty of orders but until changes are made to the cash flow culture and system, companies should remember that winning work does not mean staying in business.”

 

 

Article posted 20/4/2018

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