Why and how Balfour Beatty is increasing its reach with a £1bn supply chain spend

Balfour Beatty will be boosting its ability to deliver in a growing market where resources are scarce by spending a record £1bn with SMES in 2014, 50% of its supply chain outlay and a 33% uplift on investment with the sector on 2013. At the same time it is on a mission to make sure it pays its suppliers in 30 days. 

There is something of a cruel irony about the latter given that late payment to tier 2 group company Balfour Beatty Engineering Services was one of the main reasons given last week for another profit warning from the major contractor. 

But, even so, there are no plans to change tack in dealings with its own SMEs says the contractor's procurement and supply chain director Martin Chown, in fact the business wants to get better as an employer. He explains to Jackie Whitelaw why the company is embracing SMEs.

Why have you decided to increase your spending with SMEs?

We are doing it because we can see SMES add real value. All suppliers are important, SMEs in particular, because they understand their local economies and spending through them supports our drive to deliver social benefits wherever we work. Within the group’s largest business, Construction Services, there are over 8,000 active supply chain partners, over 75% of which are small and medium sized businesses, working on over 1000 live projects across the UK at any one time. Balfour Beatty’s own UK workforce amounts to over 20,000 and through its UK supply chain the business provides work and training for people from all educational backgrounds. The £1 billion spend will contribute to supporting around 200,000 jobs within smaller businesses, 50,000 more than in 2013. We are also backing Government’s goal to spend 25% with SMEs by 2015.

Are SMEs good value? 

Yes they are, local people working on local projects provide good value for money.

How is your spending split between various size of SME?

We use the European guidance to define an SME. At its most basic that is up to a £50M turnover for a medium sized firm, £10M for a small firm and £2M for a micro business. The latest figures we have show that we are spending £345M with medium, £330M with small and £251M with micro sized businesses.

How have you managed to increase the numbers of SME suppliers?

We have built up the numbers through local engagement. On each project now, even before we win the work, we engage with local councils etc, and hold supplier days so we can see who wants to work with us.

Late payment is a constant beef for SMEs. Do they have grounds to complain about you?

Paying on time is really important, it is one of the best motivators there is, and our standard payment terms are 30 days. We decided not to increase payment terms when times were tough, we concluded that was not the right thing to do. Our assessment is that we are good or very good prompt payers but sometimes things don’t work out. And then we fix them. Our suppliers confirm that view. When we ask them how we are doing, they say we are good or very good but occasionally there are problems. We’d like to get to the state when they stop their comments at very good.

Another challenge for SME suppliers can be what they see are onerous, long winded and expensive prequalification requirements. Are you doing anything to help them out?

This has been a major industry issue in the past with suppliers being sent large documents to complete and it can be a huge problem for SMEs. What we have done is to make sure we collect all the base information only once and then each project sends a small set of questions directly related to their job. So (once you are in the system) instead of getting 20 to 30 page documents from us there is now a maximum of three. We do use data from supply chain management companies but we also have our own system with standard Balfour Beatty questions and that is completely free.

Are you making sure your SMEs treat their own supply chain as you treat them?

Yes we want to make sure they pass on our payment terms and ethical behaviours. We are running a pilot project on the A11 Theford tracking data across 650 subcontractors at the moment.

If you would like to contact Jackie Whitelaw about this, or any other story, please email