UK subcontractors hit by unpaid invoices elsewhere

Subcontractors across the UK are losing out on up to £3 billion annually as a result of unpaid work from other businesses, new research has revealed.

According to Bibby Financial Services, UK subcontractors are forced to write-off more than £16,000 each every year as a result of unpaid work.

The report into Subcontracting Growth revealed that smaller construction firms are often being hit with penalty clauses and disputes with main contractors and others.

Data from the Office of National Statistics show there are nearly 200,000 subcontractors in the UK, not including property developers, non-residential house builders, civil engineers and house building firms.

When looking at subcontractors as a whole, it is suggested that as much as £3.1 billion could be written-off as bad debt on an annual basis in the construction sector.

Given the high upfront costs that occur on nearly every project in the construction sector, not being able to recover unpaid work and debts can pose a significant problem for firms of all sizes.

However, it is particularly an issue for smaller firms as they lack the cash flow to cover any shortcomings, meaning suppliers and workers can fail to be paid.

Should this lead to insolvency, which it may in some cases, this causes issues all the way through the construction supply chain.

When asked why they had not received full payment for work, 16% of businesses reported that they got an unclear brief from a contractor, while 14% said they encountered unexpected costs as a result of changes part way through a job.

The issue can be further complicated if a subcontractor is not aware of their legal rights and the potential action they can take.

Other problems relate to contracts, as 38% of contractors reported that contracts with larger firms were too complex to understand, while 27% said they require help with checking documents to ensure they are not exposing their company to risks and potential losses.

By Phil Smith

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