LEGAL ADVICE FORUM Is Osborne’s medicine


working? Mark Clinton says the construction industry is feeling the financial strains


In last month’s budget the Chancellor again expressed his commitment to the construction industry. Of course, with the industry being the major remaining production component of our economy, accounting for some 7% of total GDP, he needs to. Some 300,000 firms and 8% of the workforce rely directly on construction for their livelihood with many more indirectly dependent upon it.


obody really doubts that the industry is suffering but the prognosis is uncertain. In this new world disorder, economic forecasting looks more like guesswork than ever before. The RICS


N


Construction Policy predicts 2% growth in output this year; but the balance of opinion predicts further shrinkage.


The industry needs help but what can the Government do? The most obvious help would be direct financial stimulus. The budget announced £3


billion for infrastructure projects but not until 2015/16. Welcome though that is, we do not know where it will be spent and how many of the hundreds of the thousands of firms in the industry will feel the benefit. Many will not make it to 2015 and others will feel a lot of pain before they get there.


Support also came for house building and, if it works, it may have a more immediate impact. Lending money to those trying to get on the housing ladder may enable buyers to come to the market to the benefit of our house builders, their labour force and supply chain. But critics would argue that this mimics the sort of lending practices that got us into trouble in the first place and props up and further distorts an unsustainable housing market.


What we really need is an urgent return to an effective banking system but not to the mistakes of the past.


There is also help being given in areas which were not


heralded in the budget. The further education sector was hit very hard by the collapse of the so-called ‘Building Colleges for the Future’ programme. In December, the Chancellor announced an additional £270 million for capital projects and bids from colleges for that money are now in. Elsewhere in the education sector, the Priority Schools Building Programme is trundling down the tracks.


The Government has also been working on other indirect measures. We all know that what kills businesses is usually poor cash flow rather than unprofitability per se. The Construction Act was all about improving cash flow in the industry and amendments to the Act made in late 2011 sought to make the legislation more effective, although they largely missed the mark.


Further help in this area came last month in the form of the Late Payment of Commercial Debts Regulations 2013. One of


the responses to the stress in the system has been the


lengthening of payment periods, which accumulate down the supply chain so that those bearing the brunt are the smaller firms at the bottom of the chain – those least able to bear the cash flow strain. The new regulations seek to curb the use of long payment periods that are ‘grossly unfair’ and in such cases to give the payee a right to interest after no more than 60 days (30 days for public sector employers). It is an appropriate response from Government but experience under the original legislation in this area suggests few will receive the interest to which they are entitled.


At a higher level, good work is being done by the


Government on innovating in the area of the collaborative procurement and execution of projects, BIM and in trying to cut the red tape associated with public procurement. Whilst the EU public


procurement regime promotes some very good practice, for the most part in the UK it is regulating the internal market rather than cross border trade and adds considerable expense.


In summary, the industry is under considerable strain. That is evident from the increase in construction payment disputes coming across my desk. The Government can help the industry and is doing so. It should have taken more drastic action much sooner and, one suspects, it is still not doing nearly enough.


Mark Clinton is a Partner at Thomas Eggar LLP. Mark heads up the construction team and is recognised by Chambers as a leader in his field.


20 | British Builder & Developer | BritishBuilder.co.uk


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