Since the days of Banwell, Latham, Egan and before, poor payment practices have long been identified as a barrier to growth in the UK construction industry. With drawn-out payment terms, a costly manual process of application and certification and a lack of visibility for all project participants, it’s time to digitise construction payment processes, just as we are digitising other construction processes.
What does a good payment process look like?
A February 2016 Constructing Excellence forum heard a client’s perspective from Cliff Jones, head of construction procurement at the NHS framework covering £5bn of construction activity, Procure22. He defined prompt payment as “everyone paying what they are due at the earliest time – as soon as it is due (or earlier) – without delay.” In his view, good practice starts at the top with the client who should also ensure their contractors do the same – but, importantly, it should not just be up to the client. “Industry needs to be proactive on payment issues too,” he said, recognising that the impacts of late payment can ripple both up and down a project’s supply chain, and, if it results in a company insolvency, it can also ripple across multiple projects.
The problem of late payment is well recognised and documented, but what is often overlooked is that the real issues are rooted in the payment process itself.
When Textura surveyed UK industry practices in 2015, we identified that late payment risks led UK subcontractors to add 4% to bid costs, while they would discount 2.3% for early payment. It seems anachronistic, therefore, that most UK construction payment processing:
- still demands human intervention
- is encumbered by paper-laden manual processes
- adds to the human and material costs of delivering projects.
Growing industry support for digital payment
A July 2015 audience poll in a Construction News webinar perfectly captured where current payment processes fall down. When asked about the biggest barrier to growth, half cited ‘late payment’. But interestingly, and perhaps contrary to traditional industry rhetoric, when asked how payment processes needed to improve, there was little call for shorter payment terms. The most popular solutions were a digital/online approach and more visibility. The key for most respondents was ‘payment certainty’.
This view of the digitisation of payment has been championed by BESA’s Legal & Commercial Director, Rob Driscoll: ‘An online payment management system – such as Textura-CPM – would resolve the problem of how to implement and manage payment processes, making monitoring payment performance transparent and easily accessible.”
Accelerating industry payment processes is forward-looking and ethical; it breeds trust and collaboration, and it helps foster value-adding activities that enhance the resilience and reputation of all the parties involved on a project, and of the industry as a whole. Both in the short-term and with the future of the sector in mind, it is difficult to ignore the industry business case for digital payment.
If this topic is of interest and you would like to participate in a follow-up session to discuss how payment processes need to improve, please click here.
This is a guest blog from Andy Lambert of Textura Europe. We especially welcome submissions guest blogs from members of Constructing Excellence, so if you have a pitch for one please email it to firstname.lastname@example.org.