Late Payment in Construction and Engineering: What to Do?

Project Risk Management two men on building site Honeywell building solutions

Overview

Between last year’s end and the beginning of this year, Construction News in the UK conducted several investigations into the persistent issue of late payments. In collaboration with Oracle Construction and Engineering, they facilitated a digital roundtable discussion where a panel of industry experts brainstormed to devise 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 in the construction industry flows in two directions: the larger firms often delay payments to numerous subcontractors, and suppliers sometimes fail to invoice these firms promptly or adhere to the correct procedures.

Construction News (CN) examined three primary problem areas. These were:

  • The amounts paid from Dec. 14th, 2020
  • When they were eventually paid, from Jan. 14th, 2021,
  • The discrepancy between how promptly companies believe they pay their invoices and how slowly they think others pay them, from Feb 22nd, 2021.

Various legitimate reasons contribute to delayed or underpayments. Documents like the Design-Build Operate and hand-over documents are laborious and costly, as is timesheet management. Lost billable time results in significant income loss when work isn’t accurately accounted for. Additionally, many contracts are commonly under-priced.

Project Bank Accounts (PBAs)

Two main areas contribute to the problems: organizational inefficiencies and financial mismanagement. Many industry experts advocate for the promotion and increased usage of project bank accounts (PBAs) as a solution. PBAs facilitate independent fund holding, ensuring simultaneous payment to all stakeholders.

While this approach has been embraced by several groups, including the UK government, some larger firms are less enthusiastic, reluctant to relinquish overall control of funds. Additional factors have also hindered the widespread adoption of PBAs, as explained by Rob Driscoll, the director of legal and business at the umbrella body ECA.

“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

Industry consensus: Embracing digital transformation can significantly improve challenges in the construction sector. Real-time data is crucial for reporting, invoicing, and payments. Construction News emphasizes that automating billing and payment processes enhances visibility, frees up teams, detects errors, and addresses compliance. Despite industry slow adoption, individual firms must lead this digital transformation.

Related Insights

A group of engineers wearing orange high vis coats looking at plans for a project on a large sheet of paper. A pink cora lens is circling the group.

5 Biggest Trends for Engineering and Construction

We examine the biggest trends for Engineering and Construction in 2023, explore five in detail, and look at the impact of utilizing the right software.

Civil Engineer wearing a high visibility jacket and hard helmet standing at site looking at building.

Digital Transformation in Engineering & Construction

Paul Wilkinson, a leading authority on construction collaboration technology, discusses Digital Transformation in Engineering & Construction

Civil engineer on a site wearing a high visibility jacket looking at a construction site with a yellow crane. A pink and purple lens icon in the background.

Engineering and Construction Guide: 3 Targeted Benefits with Cora

Looking at 3 practical benefits specific to engineering and construction: progress reporting, managing documents and organizing contracts.

Man wearing a white hard hat and yellow high vis looking out onto a construction site with cranes

Why Do So Many Construction Projects Go Wildly Over Budget?

Why do so many construction projects go over budget? Here are three cautionary tales, two key reasons, and a solution.