Payment protection needs solving soon

Latham continues to be the issue everyone is talking about and no-one can ignore. With less than a month for the industry to get a consensus on Government proposals for legislation, specialist contractors have become the first to nail their colours to the mast. They see HMG's proposals as doing too little to protect payment, and too much to encourage bespoke forms. Consequently, they have decided - through the Constructors Liaison Group - to draft their own 'bill'.

It remains to be seen what their action will do to unite or divide the industry (remember: without broad consensus, legislation is dead). In the meantime one industry demand stands head and shoulders above the rest - the need for trust funds to protect payments.

Privately, both builders' and civils' federations have indicated that without this provision, legislation isn't worth the bother. Without trust funds, the interlocking Latham package - on which the industry agreed - won't work.

The underlying logic of trust funds is as follows. While binding arbitration would smooth general cash flow during a job, ultimate protection of payments can only be made by having a trust fund into which the client pays the contractors' money in advance.

The Government has merrily fudged the issue, proposing instead a selection of unpalatable alternatives. The justification is simple: clients aren't enthusiastic about trust funds tying up their cash. Developers also fear they risk paying subcontractors twice if their main contractor goes down and the fund gets swallowed up by receivers. (And local authorities actually are not allowed to pay for work twice.)

Two options are available to overcome the impasse. Number one, the trust could be expanded to include protected payments for first-line sub contractors. This would tie up more of the client's money, and cash-hungry main contractors are not likely to be keen either.

Number two would be to hold back some of the main contractors' money in an 'insolvency pot'. If he goes bust, subbies would still get some money - perhaps up to three weeks' worth.

Last weekend Sir Michael Latham was writing his own response to the Government's proposals, a paper that was due to be put to the Construction Industry Board yesterday (Wednesday). Let us hope he has some surprises up his sleeve. The answers to these problems may not be easy to find. But, with the bill on the line, the importance of doing so can't be denied.