Rail industry suppliers and sub-contractors can look forward to faster payment and improved payment terms thanks to Network Rail’s new Fair Payment Charter.

The charter has been signed by thirty of the biggest construction and engineering companies operating in Britain today, a move which will speed up payment and increase liquidity throughout the supply chain as Network Rail delivers £7bn of renewals and enhancements over the next two years.

The Fair Payment Charter ratifies Network Rail’s recent decision to shorten the time it takes to pay suppliers from 56 days to 21 days, and also commits Network Rail’s suppliers to make payment to their first-tier subcontractors within seven days of receiving payment.

This means the time from submission of a main contractor’s application to receipt of payment by the first-tier supplier is now 28 days – a move which will dramatically increase liquidity in the supply chain and provide greater certainty for suppliers’ in terms of business planning.

As Network Rail looks to phase out the practice of retention in its contracts – where a portion of payment is withheld until after completion of work – the charter also commits suppliers to mirror the retention regime agreed with Network Rail for the main contract with their subcontractors. So, where the main contract retention is zero, this will be replicated down the supply chain.

Simon Kirby, managing director, Network Rail infrastructure projects, said: “The Fair Payment Charter is a statement of how the rail industry wishes to do business. Applying these principles will be a significant catalyst in improving cash flow across the industry, benefitting suppliers and contractors of all sizes throughout the supply chain.”

“Network Rail is committed to meeting tough efficiency targets on it £7bn programme of renewals and enhancement during the remainder of the current control period. The Fair Payment Charter is a significant step in our repositioning as a client and reflects the aspiration for a new approach to payment in the railway industry which is not only fair but also helps to cut costs and drive out inefficiencies.”

Suzannah Nichol, chief executive of the National Specialist Contractors Council, said: “NSCC is delighted to see Network Rail, a high-profile client with a substantial portfolio of construction work, setting the standard for fair payment throughout its supply chain. Facilitating collaborative working and providing certainty of cash flow will enable specialist contractors to do what they do best and focus on the efficient and cost-effective delivery of the country’s rail infrastructure.”

Jeremy Candfield, director general of the Railway Industry Association, said: “This is another key step in the transformation of supply chain relationships that we and Network Rail have been working hard to achieve, essential for delivering the efficiencies demanded by tomorrow’s railway.”

Douglas McCormick, managing director of Atkins’ rail business, said: “This is a strong example of Network Rail’s collaborative approach to working with its key suppliers and an important step in setting the correct tone for the industry. We welcome the direct benefit it will bring to Atkins and our own supply chain, and it will strengthen our drive for greater cost efficiency in all the work we undertake for Network Rail.”

Tim Gorman, commercial director at Balfour Beatty Rail, said: “We welcome the charter and will fully embrace its intent. Payment performance to the supply chain is a major factor in shaping the quality and depth of the relationship networks that are used to deliver projects. As we move to ever more collaborative forms of supply chain relationships, compliance with the charter will demonstrate our commitment to protecting the financial security of our supply chain providers and reinforce our core values of integrity and respect.”

Steve Barry, Invensys Rail’s vice-president operations and supply chain, said: “Invensys Rail is proud to be associated with this charter from Network Rail and fully understands how important an initiative like this is for the industry. It’s essential to remain focused on cash flow throughout the life of a project and this approach to industry payment terms will make the environment fairer across the board.”