黑洞社区

More details are emerging about the way bust contractor Carillion managed payments to its supply chain with banks that were supposed to be underwriting invoices now refusing to honour pledges to suppliers.

黑洞社区 has discovered banks are not paying suppliers鈥� invoices even when they were certified and approved by Carillion prior to its collapse.

Under the terms of Carillion鈥檚 supply chain finance system, it is understood while banks agreed to underwrite payments in this way, they were not legally liable to pay if Carillion went under. 鈥淭he banks won鈥檛 get [invoices] honoured from the bust business either,鈥� one source said.

UK banks last week said they will support Carillion suppliers with emergency measures such as overdraft extensions and payment holidays following pressure from the government to do so.

But North London firm K&M Decorating, which is owed 拢230,000 for work carried out on the first phase of housing at the Battersea Power Station development, which completed just before Christmas, said that Lloyds, the bank that financed the prompt payment of his bill, was refusing to honour the invoice 鈥� despite it being signed off and approved by Carillion prior to its fall.

The 拢8m turnover firm鈥檚 managing director Kevin McLouglin, who yesterday praised clients for sticking by subcontractors in the crisis, said: 鈥淲e thought this finance scheme was a good way of getting money, it was safe, it was ring-fenced 鈥� at least that鈥檚 what we thought. But the bank says they鈥檙e not accepting the invoice.鈥�

Lloyds Bank declined to comment on the specifics of K&M鈥檚 situation.

RBS confirmed that some suppliers could expect not to be paid following Carillion鈥檚 liquidation. A spokesperson said: 鈥淲e honoured all payments until the point of liquidation filing early on Monday morning.

鈥淭he fact that a supplier may have an invoice approved by Carillion doesn鈥檛 guarantee payment in these circumstances. If the supplier didn鈥檛 load it into the system before the system closed on Friday 12 January then it would not have been capable of being loaded until Monday morning which would have been after the point of liquidation.鈥�

Santander said all invoices sent to it before Carillion went bust 鈥渉ave been funded by Santander and paid鈥�. A spokesperson said firms that had been expected to be paid by Santander鈥檚 supply chain finance scheme for Carillion should get in touch with the bank promising to investigate.

Rudi Klein, chief executive of trade body the Specialist Engineering Contractors鈥� Group (SEC), admitted the issue was a growing concern amongst his members: 鈥淲e鈥檝e heard this quite a bit from our members. People thought they were protected because they signed an agreement with the bank, but with one or two exceptions, the banks are saying no.鈥�

Klein (pictured) said that scores of his members had also reported having retentions withheld and of 鈥渞ebates鈥� to Carillion being demanded for work already done.

And he added Carillion had previously tried to avoid using a project bank account on a Crossrail scheme at Paddington as set out in the contract. It was eventually discovered Carillion had set up its own bank account with the name 鈥楶roject Bank Account鈥� 鈥� but which wasn鈥檛 independent of the contractors and didn鈥檛 allow suppliers to access their money. 鈥淐arillion in the end was forced to set one up,鈥� said Klein.

A spokesman for Crossrail said: 鈥淧roject Bank Accounts have been successfully used on all Crossrail tier 1 contracts. Crossrail set up each of the accounts for the payment of contractors and sub-contractors on Crossrail.鈥�

Suzannah Nichol, chief executive of industry group Build UK, said in future government needs to be much harder on firms that draw up payment plans out of sync with its own.

She said government rules designed to ensure 30-day payment to suppliers, introduced in February 2015, have been ignored. She added: 鈥淚f on every new government project it is clearly indicated that these are the rules, the requirements for government work, then everyone knows the rules of play. Carillion publicly had 120-payment terms, yet that never seemed to be questioned by government. It needs to be very clear what happens if 30-day payment isn鈥檛 met.鈥�

Klein wants 30-day payment policed by a 鈥測ellow card鈥� and 鈥渞ed card鈥� system, where contractors in breach are first warned and ultimately excluded from government work for two years if they don鈥檛 reform.

He also wants the government to support the Aldous Bill, currently before Parliament, which aims to ensure the ring-fencing of retentions in a similar fashion as PBAs protect payments overall.

In a House of Commons debate on Carillion鈥檚 collapse last Monday, Peter Aldous, the Tory MP behind the Bill, said: 鈥淚n preparing for that Bill, it very quickly became clear that Carillion was one of the worst offenders.鈥� And one of the bill鈥檚 sponsor MPs, the SNP鈥檚 Alan Brown, added: 鈥淗undreds of subcontractors risk losing money as a result of cash retentions on the part of Carillion. The government could have legislated previously to end that practice.鈥�

The first reading of the Aldous Bill was held four days before Carillion鈥檚 collapse. Its second reading is due at the end of April.