Public bodies are withholding £120 million of debts owed to private firms, according to an industry body.
The primary reason for withholding the cash is to improve the public bodies’ working capital but delays are putting small firms at risk of insolvency, the Specialist Engineering Contractors (SEC) Group Scotland said.
Research by SEC, which delivers nearly two-fifths of the £4 billion spent by the public sector in Scotland, found “little effort” made to ensure that secondary or sub-contractors get the same treatment as primary contractors who are paid within 30 days.
Nearly three-quarters (72%) of public bodies and almost two-thirds (64%) of universities make no attempt to monitor supply chain payments, according to SEC.
Newell McGuiness, managing director of SEC member Select, said: “This information makes very depressing reading.
“It suggests that while organisations which depend on money from the public purse would appear on the surface to be backing moves against late payment, the reality is somewhat different.
“The Scottish Government has wholeheartedly endorsed industry’s appeals to help small firms by the simple expedient of prompt payment.
“It now needs to enforce that across the bodies for whose funding it is responsible.”
SEC has called for a common start date for the 30-day payment period for primary and secondary suppliers, mandatory project bank accounts so that the supply chain can be paid directly, cash placed in trust.
Organisations which fail to pay their supply chain should be excluded from public-sector work for 12 months and an ombudsman should be appointed to monitor payment practices, SEC said.
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 ways.
“There is an expectation in Scotland that construction SMEs will invest in skills and training and smart technologies with the efficiencies created directly benefiting the public sector.
“But this is not achievable unless robust measures are adopted now to improve cash flow all the way through the supply chain.”