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Supply Chain Offered Respite as Network Rail Ban Retentions

Network Rail is banning retentions and moving to the use of project bank accounts in the upcoming five-year investment programme.

Retentions are payments that are held back to secure a contractor’s return to work in the case of repairs or extended contracts. These are a major source of dissension between client and contractor and have become renowned for their misuse. Some businesses have found to have pocketed the money, after accusing the contractor of minor errors in the finished project. Small construction companies, in particular, rely on their paychecks and many have fallen into financial distress as a result of only receiving partial payment.

Network Rail has made the first step towards easing the general maltreatment of small businesses, with their ban of retentions within the business. The move also illustrates a protective gesture on behalf of the supply chain, repairing the damage inflicted by the collapse of Carillion. This represents a significant shift, undoing the way large contractors have been doing business all the way down the supply chain.

Hopefully, this will inspire a major cultural change, and convince large firms to improve payment practices. The move from Network Rail has already prompted the endorsement of Colas Rail, VolkerRail, VolkerFitzpatrick and Amco.

For late payment and supply chain behaviour to improve, the business landscape demands improvement. Blue chip companies are unwilling to admit responsibility, small businesses are unwilling to speak against them, and everything is simply continuing as before. However, this demonstration by Network Rail has illustrated industrial awareness of the issue, relieving the heavy strain that retention payments have historically put on small business finances.

At the Credit Protection Association, many of our Members have suffered at the hands of late payments and unfair payment practices. As a result, our collection team has freed up cash flow and recovered overdue payments, therefore awarding our Members with financial stability and a stronger position in the industry.

Stephen Blakey, commercial director at Network Rail, said: “Culturally, this sends a huge signal as to the value we place on a sustainable supply chain and the way we want to do business.

“We recognise the challenges faced by smaller suppliers and are in a position to influence the way work on our railway is delivered and paid for.

“It is in our interest to have a sustainable supply chain at all levels – they are vital to the successful delivery of our projects and the safe operation of Britain’s railway.”

He added: “The changes will make a significant difference to smaller suppliers in particular, who rely on regular cash flow to operate successfully.

Stephen Blakey, commercial director at Network Rail, said: "The changes are something our major contractors are very supportive of and we continue to work closely with them to help manage this effectively. For instance, we have created best practice T&Cs to adopt with their own supply chain,”

When an individual or business supplies a product or service, receiving payment should be assured. Unfortunately, this is not the case, with businesses of all shapes and sizes manipulating payment terms for their own benefit. One of the worst offending sectors is construction, with late payment, bad payment, and retention payments threatening small business finances throughout the industry.

At the Credit Protection Association, our debt recovery services have been used by our Members to restore the financial power that has been diminished by late payment. We have chased down unpaid invoices and awarded our Members with the extra cash to fill holes in cash flow and even encourage expansion pursuits.

Here at CPA, we fight to the tooth for our members, particularly those who have suffered through late payment and bad payment practices. We have even created a new department within our company dedicated to getting our members rightly compensated in accordance with the Late Payment of Commerical Debts (Interest) Act 1998. This has unlocked hidden cash and potential for our members and brightened their prospects and confidence on the construction site.