SMALL firms in Scotland are at risk of collapse because public bodies are withholding £120 million of debts owed to private construction companies.

According to research carried out by industry body the Specialist Engineering Contractors (SEC) Group

Scotland, “little effort” is being made to ensure secondary or sub-contractors get the same treatment as primary contractors who are paid within 30 days.

The primary reason for withholding the cash is to improve the public bodies’ working capital. But SEC, which delivers nearly two-fifths of the £4 billion spent by the public sector in Scotland, insists delays are putting small firms at risk of insolvency.

Figures also revealed that 72 per cent of public bodies and almost two-thirds (64 per cent) 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, and mandatory project bank accounts so that the supply chain can be paid directly.

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."

The Scottish Government said it was “committed to ensuring that procurement guidelines on pay are adhered to and that companies are paid on time, because we understand how important this is to the financial future of smaller firms”.

A spokesman said: “The Scottish government has been co-ordinating trials of Project Bank Accounts (PBAs), which are ring-fenced accounts that payments can be made directly and simultaneously by a client to contractors and sub-contractors, improving cash flow through the supply chain.

“Our focus on prompt supply chain payment will continue, and we will work closely with our delivery partners in other pilot projects to build positively on what we have learned through our experience.

"The Scottish Government is absolutely committed to ensuring every pound spent on infrastructure investment goes as far as possible to support businesses and jobs, building greater resilience into the broader Scottish economy.”