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Thousands of SMEs to benefit from rail contract changes

Network Rail will be changing contract terms between subcontractors and suppliers in an effort to benefit thousands of small medium enterprises around the country.

The publicly-financed organisation will now require suppliers to commit to subcontractors within 28 days, as well as removing the use of retentions on those payments — an issue that has been hotly debated in the industry because of the negative impact it can have on smaller companies.

Removing retentions, which withhold large sums of money from sub-contractors until project completion, will allow smaller suppliers to be paid promptly and more reliably, which will “place smaller suppliers in a stronger financial position,” Network Rail added.

“The changes will make a significant difference to smaller suppliers in particular, who rely on regular cash flow to operate successfully. We want to foster an environment that is fair, sustainable and encourages growth; but this is not at the expense of our larger suppliers,” commercial director at Network Rail Stephen Blakey said.

Network Rail will also continue with its ‘Fair Payment Charter,’ created in 2011 for the arrival of CP6 next year. The charter aimed to cut payment times to suppliers from 56 to 21 days, whilst suppliers’ own first-tire sub-contractors — typically SMEs — will be paid within seven days of the supplier receiving a payment.

Blakey said that the charter is was about recognising that cash flow is “the life blood” of every supplier, adding: “We recognise the challenges faced by smaller suppliers and are in a position to influence the way work on our railway is delivered and paid for.

“It is in our interest to have a sustainable supply chain at all levels – they are vital to the successful delivery of our projects and the safe operation of Britain’s railway.”

The use of project bank accounts on major projects will also be introduced, meaning payments to subcontractors can be agreed by the client and scrutinised more closely.

Andries Liebenberg, managing director at AMCO, said: “Network Rail’s introduction of sub contract payment terms and abolition of retentions is wholeheartedly endorsed by Amco. 

“This is an industry leading example of how to embrace the supply chain and demonstrates how we can all work together to bring efficiency, value, and a great service to our collective stakeholders and customers.”

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