The Specialist Engineering Contractors’ (SEC) Group – which represents SMEs in the construction engineering sector – has warned that current cashflow problems in construction are unsustainable.

Given lengthy payment periods, and lack of access to reasonably priced lines of credit, SMEs are relying more and more on their directors for funding. Directors lent their construction businesses £38 million in 2015/16; in 2013/4 it was £29.7 million (source: Funding Options).

Professor Rudi Klein, CEO of the SEC Group, said: “With SMEs now relying more and more on their directors for their liquidity, the cashflow position in the industry is now critical. These companies are taking longer and longer to pay their supply chains, with SMEs having to spend the bulk of their contract values up front before receiving any payment.”

This is against the background of the poor state of the balance sheets of the UK’s largest construction firms, recently highlighted by the problems faced by Carillion (the second largest construction company).

SEC Group is pressing the government to introduce legislation to:

  • Mandate the use of project bank accounts across the whole of public sector construction
  • Ring-fence cash retentions
  • Mandate 30 day payments.