Subcontractors in the construction industry are forced to write off an average of more than £16,000 every year.
The research by financial services firm Bibby, which surveyed 250 subcontractors in the UK, found that smaller construction firms were often on the receiving end of penalty clauses and disputes with main contractors and clients after work has been completed.
According to the Office for National Statistics, there are nearly 200,000 construction subcontractors in the UK, meaning a total of nearly £3.1bn is potentially being written off across the industry every year.
On average, subcontractors had written off nearly £51,000 each in bad debt over the past three years.
The firms surveyed outlined the reasons why full payment for works had not been given, with 16 per cent saying they received an unclear brief from the contractor, while a further 14 per cent reported they had to overcome changes to the work brief part way through the job.
The subcontractors also said that main contractors needed to do more to make procurement and contracts simpler.
Two-fifths (38 per cent) said contracts with larger businesses were too complex, while 27 per cent said they needed support to check contracts thoroughly to avoid exposing their business to potential losses.
More than half (55 per cent) also said they had to accept the terms and conditions stipulated by main contractors, or they would risk losing work.
One in five firms do not thoroughly check contracts before they sign them.
Subcontractors also reported waiting 42 days on average to receive payment from main contractors, with 27 per cent of firms saying late payment was the biggest threat to their business over the next 12 months.
Bibby managing director of construction finance Helen Wheeler said more needed to be done to protect and support small construction firms.
“The construction sector is characterised by high upfront costs, and for this reason unpaid work and debts that cannot be recovered are serious issues for both big and small firms,” she said.
“The issue is particularly problematic for smaller subcontractors. Not only does it impact a business’s cashflow, it often prevents suppliers and workforces from being paid.
“In extreme cases, it can lead to insolvency, causing serious repercussions throughout the entire construction supply chain.”