PROCUREMENT AND SUPPLY CHAIN
Approaching the tipping point on fair payment G
The Fair Payment Charter is driving better practice across the supply chain. RTM spoke to Network Rail Infrastructure Project’s commercial projects director, Stephen Blakey, about the charter’s progress.
etting paid on time is one of the most important – and trickiest – elements of contracts across the rail supply chain. Network Rail has been working to improve its relationship with both tier 1 and tier 2 suppliers; a challenge that is seeing new ways of working cascading throughout the industry.
Stephen Blakey, commercial projects director at Network Rail Infrastructure Projects, talked to RTM about the Fair Payment Charter (FPC), just over two years on from its implementation. The voluntary charter was launched on 11 November 2011 with the support of the top 30 tier 1 contractors. But Blakey said: “The target benefi ciaries are actually the tier 2s.”
Fair payment is supported by a commitment to pay tier 2 suppliers no later than 28 days after the point at which the tier 1 company applies for the money. The charter also encourages a regime in which the tier 1s aim to refl ect the retention regime in place between them and Network Rail in their subcontracts.
Changing payment habits
Since its launch, Network Rail has carried out research to understand the level of awareness about the charter in the industry.
“What are the payment habits that are going on and how many of the standard terms and conditions have been amended to support the payment regimes that we’re looking to put in place?” Blakey asked.
Responses from over 130 individuals,
representing a broad range of contractors, including the ‘big six’, showed that over 90%
56 | rail technology magazine Dec/Jan 14
had heard of the FPC and 75% knew that the length of payment was being shortened to 28 days.
Network Rail is also holding up its end of the deal; at the same time as the launch of the charter the company shortened its standard payment terms from 56 days to 21. Blakey said: “For most of our contracts, we are meeting, or very close to meeting, that 21 day payment regime.”
The survey also showed that 58% of contractors reported changing their terms and conditions to base their subcontracts on the charter. For the remainder, Blakey pointed out that a proportion would be older contracts that would not be covered by the new guidelines.
“We never sought to retrospectively apply the principles of the fair payment charter. If you’re working on contracts that were let before then, they may well have been let under the old regime.”
Back-offi ce barriers
The survey also investigated tier 1 contractors’ perceptions of the biggest barriers
to
Tier 1 contractors’ reasons for not paying in accordance with the FPC
implementing the FPC. They reported that the largest single reason was late applications from the sub-contractors.
Tier 1s also cited fi nance system problems, with back offi ce IT systems and processing payment schedules needing to be aligned for a joined-up result. This could stem from instances where the charter is being implemented sporadically, with parts of the system set up for one-off payments rather than a change to the structure of their payment procedures.
“There’s a dependency in terms of the processing which goes on from fi nance and they haven’t got around to doing their bit; either because they don’t know about this, or they might have changed it in a staccato way for those jobs where practitioners have contacted them to say they need to change it, but they haven’t systemically changed the default payment regimes,” Blakey said. “Until they get to a systemic change in back-offi ce functionality, you don’t get to the wholesale change. That is a factor that would slow down industry deployment.”
Must try harder
At this last summer’s six-monthly tier 2 conference, hosted by Carillion, one of the strong messages was that tier 2s were not enjoying the cashfl ow benefi ts they should,
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