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Late Payment in the Construction and Engineering Sector

Late Payment in Construction and Engineering: What to Do?

Between the end of last year and the beginning of this, the UK’s Construction News conducted a number of investigations into that perennial bugbear; late payments. Teaming up with Oracle Construction and Engineering, they organized a round table discussion in which a panel of industry experts knocked heads, albeit digitally, with the aim of producing some practical solutions.

This is hardly a new problem. The US-based website Constructiondive covered a 2018 survey with the headline;

“Slow pay adds $40B a year to construction industry costs”

Late payment moves in two directions. It’s the failure of the larger construction and engineering firms to more promptly pay the army of sub-contractors they have working for them. And it’s the failure, for whatever reason, of suppliers to properly invoice those firms, either in a timely manner or following the correct procedures.

Construction News (CN) looked at the three main problem areas; the amounts paid, from Dec. 14th 2020, when they were finally paid, from Jan. 14th 2021 and the discrepancy between how promptly companies believe they pay their invoices, and how slow they think others are in paying them, from Feb 22nd 2021.

There is any number of understandable and even legitimate reasons for delayed and or underpayments. The Design-Build Operate document, or a hand-over document, is incredibly laborious and costly to process. As is timesheet management. And a huge amount of income disappears from lost billable time, when, for all sorts of reasons, work done is not properly accounted for. Most commonly of all, a large number of contracts are simply underpriced.

Project Bank Accounts (PBAs)

The problems result then from two areas; organizational inefficiencies, and financial mismanagement. And one of the solutions championed by many of the industry experts was the promotion and increased usage of project bank accounts, or PBAs. These allow for funds to be held independently to ensure that everybody gets paid at the same time. This is what a number of groups, most notably the UK government, have turned to in an effort to address these issues.

Predictably, this has not been universally welcomed by some of the larger firms, who are less than thrilled at the prospect of losing overall control of those funds. But there are other factors that have delayed PBAs from being more readily embraced. As Rob Driscoll, the director of legal and business at the umbrella body ECA, explains;

“The main contractor is still in charge of valuing, (so) you could face disputes over premature delivery of materials or someone’s claim they’ve done two floors when they’ve done one. You need to couple it with a digital payment platform. Then you start to streamline the process.”

Digitization

This is the one thing that everyone, regardless of where they work in the industry, is agreed on. All of these issues would and will be greatly improved once the construction industry more fully embraces the move to digital.

Because without real-time data, you’re leaving management in a straitjacket when it comes to reporting. And it’s reliable, real-time reporting that determines invoicing, paying, and ultimately getting paid. As Construction News concludes;

“Automating as many processes as possible relating to billing and payment improves visibility throughout the payment cycle at all levels.”

It frees up internal teams, allowing them to focus their energies on other tasks. And it flags up paperwork, manual errors, and any upcoming payment dates, as well as highlighting all and any compliance requirements. All of which will help to ensure that payments are made on time and in full. Or at the very least, that those discrepancies and delays are significantly improved upon.

But thus far, the construction industry has been noticeably sluggish about making that change to digital. Which means it’s really up to the individual firms to take the lead in this. For once, it’s up to you.