Scottish public sector owes £120 million to SMEs

26 March 2015

Public sector bodies in Scotland are withholding nearly £120 million of debt owed to mainly to small firms.

Many public sector organisations are withholding payment in order to improve their own capital position, according to new research carried out by the Specialist Engineering Contractors’ (SEC) Group Scotland.

But by doing so they are placing Scottish small firms at risk of insolvency, the organisation believes.

The SEC carried out a year-long survey of almost every public body in Scotland based on questions submitted under the Freedom of Information Act (FOI).

The survey revealed that while all UK public bodies claim to pay their tier one contractors within 30 days there is a lack of clarity as to when that 30 days starts from. Of those surveyed 70 per cent claimed to have measures in place to track payment performance in the supply chain. But the SEC added, within the university sector this figure was only 35 per cent.

Meanwhile 97 per cent of all bodies retained cash to some degree. “The overwhelming majority of public bodies admitted using the cash raised by retentions to supplement their working capital,” the SEC said.

At an event held in the Scottish Parliament to announce the results of the survey, Nigel Don MSP, chairman of the cross-party construction group, said: “The public sector should be setting an example in how to manage and treat its construction supply chains.”

“Compared to the rest of the UK the Scottish public sector is generally performing better in this regard but it needs to be more proactive in driving out bad practice that impacts directly on the growth of small business.”

SEC Scotland has called for all public sector construction payments to be made within 30 days of the end of the month in which the work was carried out. It also said any organisation failing to pay its supply chain within 30 days should be banned from public sector work for a minimum of 12 months.

Additionally the SEC wants targets to be set for the introduction of project bank accounts across the public sector, a standardised pre-qualification process, and the creation of a public procurement ombudsman.

Eddie Myles, chairman of SEC Group Scotland, said: “The regulator or ombudsman must have the power to challenge poor practices and to order those public bodies who don’t meet the standards to change their way.”

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