No full retreat on pay terms
120 day terms a virtual certainty for new Rio Tinto business in CQ.
Wednesday 20 April 2016
CONTRARY to widespread reporting in other media - Rio Tinto is not ruling out taking 90 days to pay its small suppliers, and more than 120 days to pay its big ones in the future.
A fortnight ago, Shift Miner reported that Rio Tinto had made a decision to more than double the time it took to pay its contractors. The story caused a public backlash from Rio Tinto suppliers and was picked up by national media and ultimately government who took the issue up with Rio Tinto at the highest level.
As a consequence of those meetings, Rio Tinto released the following statement to Shift Miner, which some have mistakenly interpreted as a complete backdown by the company.
“We recently announced changes to the terms of some of our supplier segments to help maintain jobs in a difficult global environment for commodities,” they said.
“It was a global decision that was also designed to help us to preserve our current business and give us the option to grow the business where possible around the world.
“The decision to ask our suppliers to share some of the burden has not been taken lightly and we have endeavoured to reduce the impact where we can.
“We value our partnerships with our suppliers and their feedback, so we have taken the decision to maintain our payment terms for those suppliers with contracts in place, as they were at March 30.
“To ensure full transparency, future arrangements with our suppliers will be negotiated as part of any discussions about new contracts to maintain the competitiveness of our business and our future ability to develop our assets.”
Rio Tinto refused to elaborate to Shift Miner on whether the statement meant existing suppliers would be faced with the new terms for any new work done - instead pointing to the last line of the statement as the critical one.
Shift Miner’s interpretation, is that suppliers can expect the hyperextended payment terms will now be a feature of all new contracts, opening the door to Rio Tinto simply asking its suppliers to re-quote on existing work, and then enforcing the new terms in the new contract.
For a fortnight local business has been scrambling to come up with a plan for the future following the company's bombshell announcement about its payment terms.
“These sort of terms make it extremely difficult for a business like ours to survive because we don't have access to vast amounts of borrowed capital, and we have to pay our people weekly,” one supplier told Shift Miner last week.
“We don’t resent big business, Rio Tinto have been one of our most reliable clients and we realise it is tough for them at the moment, but a move like this just makes you think twice about the future of that relationship.
“The irritating part is that even 60 days isn’t accurate, the reality is the 60 days starts at the end of what they called an accumulation period, which they told me is just the end of the month.
“Why they just wouldn't just say 60 days end of month is beyond me, and just gets you thinking they are not honest about it.
“The other fine print is the day of payment which is either the first or fifteenth of each month which means if everything goes to plan, the work you do this week wouldn't be paid until mid-July for a small contractor and in September for big ones.
“And in my experience payments rarely go to plan.”
The announcement comes nine months after BMA advised local suppliers that it would be moving its terms from 30 to 60 days as it tried to manage cash flows during the current mining downturn.