View from City Road: Construction industry needs rules on payment

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The Latham report on the construction industry is another worthy tome that seems destined to highlight but do little to solve its intractable problems.

That something needs to be done about one of the country's biggest yet least profitable industries is not in doubt. But what is required is more than the well-meaning tinkering with contracts suggested by the report.

At the root of the problem is the industry's habit of making tenders below cost in the belief that profits can be chiselled out later through the lawyers. That is no way to run a sensible business.

Yet until clients buy on the basis of quality and value rather than price alone, contractors will continue to tender on an unrealistic basis. Unfortunately that is up to the market to decide, not the Government - except in so far as it is the industry's biggest customer.

What the Government can do is impose prompt payment requirements to prevent the industry's small-fry providing cash flow for larger businesses. This often leads the smaller more efficient companies to go out of business, in poorer times, while the big less efficient companies are supported by their bankers. Worrying about training, public image and the rest will remain an expensive luxury until such issues are tackled.