Network Rail to ban retentions and mandate payment periods to subcontractors
Construction News has reported today that Network Rail is set to revise its terms and conditions and under the amended terms "all tier ones will be required to pay suppliers within 28 days of work, while cash retentions will be completely abolished".
The changes come in the wake of the liquidation of Carillion and the increasing movement (from inside and outside of the industry) that seeks to have cash retentions abolished.
Network Rail generally procures work utilising its own suite of standard form contracts (the NR standard forms) and we are yet to see the promised changes to these terms. However, revisions of the NR forms are expected later this year and it is understood that, when released, they will contain obligations on tier one contractors to pay subcontractors within the specified period and without retention. A process is also expected whereby Network Rail will allow suppliers to alert them directly to any contract that does not meet the requirements.
Obligations upon tier one contractors to pay their suppliers within a particular period are not new. However a significant question is how such obligations are actually enforced by the employer/client, which is clearly important not just for the supply chain but also tier one contractors to ensure all are operating to the same expected standard. In addition to suppliers being able to notify Network Rail directly, Network Rail has said it will be carrying out regular spot-checks on tier one contractors, with non-compliant firms having to explain their positions. As an organisation, Network Rail ranks its contractors in league tables and it remains to be seen if financial performance will form part of those rankings in the future.
Network Rail has also announced that it will be introducing provisions for project bank accounts so that they could be used in projects where deemed suitable and that it will be carrying out periodic financial checks on its supply chain. Stephen Blakey, commercial projects director for Network Rail’s Infrastructure Projects division, told Construction News "we will be checking those suppliers a minimum of once a year, but in some cases there may be quarterly assessments where required".
The news comes in readiness to include the provisions in Network Rail's next spending period, Control Period 6 (CP6), where high value procurements are already underway.