Contracting: Victims of the ripple effect: How little guys pay for big companies' troubles

THE developer Olympia & York's Canary Wharf project went into administration in May to protect itself from creditors while it tackled a financial crisis, but many small companies involved had no such protection and face collapse because of unpaid invoices.

So far, an estimated 130 contractors working on the project have gone under, as construction companies pass their cash-flow problems down the line.

This 'subbie-bashing' - where sub-contractors that have completed work are forced out of business when larger companies can't or won't pay them - is investigated in Business Matters on BBC 2 on Thursday.

The programme, The Cheque's in the Post, tracks the fate of Derek Greene, former managing director of Xtraskill, as he tries desperately to recoup money owed to him for labour already supplied. Mr Greene is the little guy at the end of a long chain that starts with some well- known names.

His story is an example of the way cash-strapped companies, often trading on slim margins in an effort to obtain work, sometimes pass their payment difficulties on to smaller, less powerful businesses. The practice is particularly prevalent in the construction industry, which has been hit hard by the recession. But its growth in other sectors has led to calls from small business groups and others for laws to counter it.

Xtraskill's problem dates back to November 1989, when it was instructed to supply labourers to carry out work. The company got into trouble when the groups further up the line had a dispute over payment. While they argued, Mr Greene and his company received nothing.

This was enough to send the company to the brink of collapse. Xtraskill, for the first time in its six-year history, had so little cash it could not pay its workers.

'I've put my heart and soul and my wallet into this company. Today I cried. I'm six foot tall, hard as granite, and I cried as I'm going to do now. Because to me, it's been my life,' Mr Greene says, as he breaks down in front of the cameras.

Next he is seen winning a last-minute reprieve from the factoring company which advanced him 80 per cent of the amount owed in return for chasing the debts. The factor agreed to give him credit on one of his debts, although it regarded it as uncollectable because the invoice was being disputed.

'My chin's always up. It's my testicles that keep getting trodden on,' he says. But a week later, on 11 May 1992, he was forced to cease trading.

By this time, the company's turnover for the year was pounds 100,000. But pounds 34,000 of it was bad debts.

The company for which he supplied workers for Canary Wharf had owed pounds 11,000 for more than six months. Its inability to pay was the straw that finally broke Xtraskill's back.

But Mr Greene was also owed pounds 9,000 by another company, which he said used a series of excuses - ranging from 'The cheque's in the post' through 'Our computer's down' to 'We've lost your invoice.' When a cheque for part of the sum arrived, it bounced. When he asked for another cheque, that also bounced. Then the company went out of business.

Xtraskill also lost nearly pounds 9,000 when a third firm went into voluntary liquidation.

Yet another company that had used Xtraskill labourers in 1990 and 1991 owed him pounds 54,000 by the time the work was completed. Every time Mr Greene threatened to take his men off the site, the company said it would sue for extra expenses incurred as a result. Finally, this company agreed to pay, as long as there was a discount. As he saw no way of collecting the full amount, he accepted a settlement of pounds 45,000.

About half of the company's hundreds of customers across the UK did not pay on time. And the practice of 'forced discounting' meant that even when they did pay, the profit margin was often wiped out.

Xtraskill only survived as long as it did through using the factoring company. But in the end the profit margins were cut so low that it could not afford the factoring charges.

When the programme's producer, Jane Walmsley, got credit reports on some of the UK's top construction companies, she found the highest recommended credit limit was pounds 300,000. Although turnovers were typically in excess of pounds 50m, only one of them had a payment record rated any better than 'fair' - which is next to lowest on the scale.

Pressure groups are now lobbying for legislation like that in the United States and many parts of continental Europe, stipulating that payment must be within a certain period - usually 30 days - otherwise interest becomes due.

This might help, but as Ms Walmsley says: 'There are abuses in the construction industry which are very difficult to tackle, because it is desperately oversupplied with people who are dying to do the work.'

'The Cheque's in the Post' will be broadcast on BBC2 at 7.30pm on Thursday.

(Photograph omitted)