Construction subcontractors write off thousands of bad debt annually
UK subcontractors are writing off thousands of pounds annually as a result of unpaid work, new figures show.
It is suggested that construction firms are writing off more than £16,000 each, and that as much as £3.1 billion could be written off as bad debt each year.
The figures from the Subcontracting Growth report, from BFS, also reveal that smaller businesses are those most likely to be adversely affected.
Data from the Office for National Statistics, which excludes property developers, housebuilding and civil engineering and non‐residential building, showcases 198,000 subcontractors in the UK.
Penalty clauses and major disputes were most common among firms with low numbers of staff, hitting cash flow and their ability to pay employees.
Unpaid work and late payments are serious issues for firms of all sizes, and in serious cases when it leads to insolvency, the effects can be felt across the construction supply chain.
High upfront costs are associated with the majority of construction projects, as significant funding is often needed for planning and materials.
If those debts cannot be recovered, businesses can be left short on finance and they may be forced to restructure in order to keep trading.
Numerous issues for not receiving full‐payment on projects were discovered in the report, with 16% of firms saying they had an unclear brief.
A further 14% said they were forced to counter changes to their project brief midway through completion, often with associated costs attached.
Financial disputes are a common features in the sector, a situation that can be further complicated by a lack of knowledge among smaller firms of their legal rights.
Complex contracts are another major issue, as more than a quarter of subcontractors said they need assistance to check contracts in order to prevent exposure to potential losses, and even to the threat of administration or other insolvency measures.
By Phil Smith