There’s a memorable scene in Goodfellas, where narrator Henry Hill (Ray Liotta) succinctly covers how payment ‘for services rendered’ works in mob-land.
“Business bad? [Tough], pay me. Oh, you had a fire? [Whatever], pay me. Place got hit by lightning, huh? [Too bad], pay me.”
It doesn’t work like that in construction, nor should it. No, our industry’s transactions all too often take the opposite form.
The scene, re-written for construction-land, might all too often go something like this:
Which variations? Let’s get tied up in arbitration, then hopefully pay me. Disputed over-run? Time for drawn-out negotiation, then maybe pay me. Only got a short-form agreement? Let’s burn money on a legal bonfire, then see who pays who.
And so on.
Aside from health and safety, getting paid on time is one of the industry’s biggest concerns, as well as one of its most debilitating.
So CN conducted a survey, in collaboration with Oracle TPM, to assess how wide-ranging as well as penetrating the problem is (it also included examples of best practice).
Over 600 respondents representing everything from clients to consultants to suppliers, and of course contractors, provided us with a picture of where the industry is.
The results, with commentary from a range of experts, make for compelling if grim reading.
For example, while nearly 80 per cent of clients made three quarters or more of their payments in accordance with their contractual terms, only 55 per cent of respondents from tier one contractors could admit to doing the same.
As Building Engineering Services Association solicitor Rob Driscoll puts it: “As payment cycles seem to be shorter and better managed between client and tier one contractor than between tier one contractor and subcontractors, the industry is therefore still by and large using delayed supply chain payment as its preferred method of borrowing.”
But it’s also the widely held perception that further regulation is the answer that causes many a head to sadly shake.
“The fact that a large number of subcontractors look to legislation to solve their payment problems is a poor reflection on the industry’s ability to solve its own challenges,” says Arcadis partner and head of strategic research and insight Simon Rawlinson.
And he’s not alone.
Speechly Bircham partner Steven Carey said: “Approximately 50 per cent of all respondents strongly believed that legislation could assist in freeing up payment. I wonder what they had in mind?”
“The industry can rely upon both the Housing Grants Act, which enables a party to suspend works pretty quickly if payment is not made, and the Late Payment of Commercial Debts (Interest) Act.”
“If used properly and expediently, the threat of suspension concentrates the payer’s mind wonderfully,” he says.