Passing pain down the supply chain is harming the whole industry
My overwhelming, some would say naive, optimism for the future of our industry was dashed again this week. On learning that the government was inviting key contractors to sign a memorandum of understanding to 鈥渞e-engineer procurement and service delivery鈥� and the Cabinet Office is looking for a 鈥済reater focus on value for money鈥�, I foolishly thought this would be the driver for the industry to implement some of the recommendations that stretch back almost two decades.
Clearly this was my misunderstanding, as one of the first contractors to sign the memorandum has taken 鈥渞e-engineering procurement and service delivery鈥� and 鈥渂etter value鈥� to heart and asked its supply chain to help; by introducing what Carillion politely calls 鈥渧olume discount payments鈥�. The specialist contractors I have spoken to call them something far less polite.
A volume discount payment is sometimes called a rebate and is, in real terms, a price cut. In one particular case it is one hell of a cut, a 20% cut to be exact. During 2011, 2012 and 2013 any subcontractors that have signed up to these 鈥渞e-engineering鈥� and 鈥渂etter value鈥� principles will be required to add up what they have been paid in each quarter and pay back up to 20% of it. And, to add insult to injury, despite Carillion鈥檚 payment terms in this example being 65 days they require their volume discount payments from subcontractors within 30 days. Scottish Water runs a similar rebate and requests payment within 28 days with the value to be rounded up to the nearest 拢1,000 - though at least it pays in 30 days. Clearly both understand the concept and importance of fair payment but some see it as a one way street with all the traffic heading their way.
Better value can be achieved through a more collaborative and integrated industry. Meaningful value engineering can only happen with the involvement of specialists that understand the latest technology and know what works; by reducing waste of time, resource and materials; by skilling the workforce to deliver to the highest standards while meeting health and safety expectations; and by paying promptly and eliminating unnecessary financing costs.
If we implemented those recommendations that the majority seem to think are sensible, we might actually be able to deliver the better value required, 鈥渟hare mutual respect, trust and commitment鈥� and 鈥減romote an enjoyable, rewarding and healthy working environment鈥�. Would you believe it, these exact words were contained in the same document that asked for the rebate.
Suzannah Nichol is chief executive of the NSCC
Read an analysis of passing cuts on .
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