22nd April 2016 Journal Column

Web-LogoBy Catriona Lingwood, Chief Executive of Constructing Excellence in the North East

Prompt payment, or the lack of it, is such a big issue in our industry and it has repercussions that not everybody is aware of. Not only does it cause economic and social damage, but it has really tarnished the reputation of the industry, and it’s about time that changed.

Finance is a huge problem for our industry and a one I don’t think we’ve taken seriously enough in the past. In everyday life you pay for things immediately, whether that be goods or services, and you wouldn’t dream of asking to delay the payment or paying less than what was due, so why should our industry be any different?

Prompt payment, more often referred to as late payments since it’s becoming more of a rarity that they are ever prompt, is everyone paying what they are due as soon as it is due, or earlier.

Earlier this year, Constructing Excellence held a members’ forum discussing the subject of payment. Industry professionals from contractors to suppliers, shared their opinions and shed light from all perspectives, on how late payments affect their work. The outcome of the session was that good practice needs to be carried out throughout the project, whether it be with the client or the contractor, and everyone should pay on time to help the project run smoothly- no surprises there then.

With the rest of the industry digitising, integrating collaborative design and construction processes, and with the new Building Information Model (BIM) mandate going live earlier this month, it surprises me that the way we pay our bills is yet to catch up. For everything else, payment is now automated, we can complete transactions easily via apps, or Paypal, so automatically paying bills online once work is verified and complete could be the answer to all of our problems. It just doesn’t make sense that when it comes to making a payment we are so out-dated, but we have robots capable of building houses.

In a bid to encourage prompt payment, many subcontractors have inflated their tender prices to cover the costs they incur when their customers pay late. Textura found that on average, four per cent is added to costs to cover late payment, but subcontractors did say that they would discount prices by an average of 2.35 per cent if contractors paid promptly – within 30 days.

During the forum, when asked why it was necessary to delay payments, the answers included; project defects, no cash and a simple ‘because I can’, showing that most of the inefficiencies could be resolved by better industry attitudes and behaviours.

Thankfully, the case for prompt payment was particularly strong, with people understanding why prompt payment was so essential. Resolving the current issues could potentially deliver immediate financial benefits to projects and companies, improving the industry as a whole. If more businesses practice prompt payment, the reputation of the industry will sharp change to one that is trusting, capable of collaborative working and most importantly, ethical!