Network Rail has promised to pay subcontractors within 28 days and will no longer use retentions on those payments, the company has said.
The move is part of significant changes to contracts ahead of its next five-year funding period, from 2019 t0 2024, which will underpin the delivery of its next multi-billion pound investment programme.
The changes are part of a number of improvements being made to help create a healthier environment for suppliers at all levels, says the company, and will result in the rail industry becoming the first sector within the wider UK construction industry to enforce these payment measures, overhauling the way large contractors do business with their supply chain.
Network Rail Commercial Director Stephen Blakey : “The Fair Payment Charter we implemented in 2011 was about recognising that cash flow is the ‘life blood’ for every supplier by committing to pay for goods and services in a fair, predictable and timely way. Harnessing the support we have already received from our major suppliers, we have simply taken the next natural step. Culturally, it 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.”
Benefits of the contract changes centre on better protection of lower levels of supply chain. Removing retentions, which withhold large sums of money from sub-contractors until project completion, will place smaller suppliers in a stronger financial position. Being paid promptly, within 28 days of completing work, also means that contractors are owed a smaller amount of money at any one time, again strengthening their cash flow.
“The changes will make a significant difference to smaller suppliers in particular, who rely on regular cash flow to operate successfully. We want to foster an environment that is fair, sustainable and encourages growth; but this is not at the expense of our larger suppliers. 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,” Mr Blakey added.
In further moves to assure cash flow, Network Rail is also introducing the use of project bank accounts on some of its major projects, meaning payments to subcontractors can be agreed by the client and scrutinised more closely. This move will provide greater certainty and reassurance to SMEs delivering work on their projects, as it means payments made to the project by Network Rail are transparent and the distribution of any onward payments to subcontractors is also visible.
The changes provide a standard and level of expectation for anyone working on the railway, especially for the way smaller companies are treated. Blakey goes on to say: “For SMEs, this makes rail very favourable when compared to other UK construction sectors and helps ensure that we remain a client of choice in an increasingly competitive market.”