Got an earful the other day from a contractor certain that the construction industry “will not exist in five years”. After decades of steady conflict and too few positive deposits the differences were irreconcilable. He complained about bloated government regulations, ruthless general contractors and a decreased pool of good workers. He saw no viable future for an industry he once cared so deeply about.
He talked about payment as a rigged game, after barely surviving multiple experiences not getting paid. One six digit hit almost took him down. He had rebuilt from zero without bankruptcy, but it had taken years. He regretted the decision. When it comes to construction, there are two kinds of contractors: ones who have not been paid and ones who are not going to get paid.
Pricewaterhouse Coopers survey, “Bridging the Gap: 2015 Annual Global Working Capital Survey,” took a global look at working capital by industry and it was no surprise that construction was among the very worst performers. The report showed receivables of 71+ days, making it last in the world for Days Sales Outstanding (DSO). And while many industries have improved working capital issues, construction has gotten worse – ranking last in yet another payment-related category.
I may disagree with a construction doomsday prediction, but there’s obviously a serious payment problem. The problem also embeds costs for payment risk, expected long receivables and little access to working capital in project bids. These costs can get compounded for long, contentious payment chains between funders, owners, professionals, CM’s, GC’s, subs, more subs and material providers. The need is strong to hold working capital as long as possible, before passing owed portions on.
Let’s face it, problems always have a cost, and the cost of payment problems in the construction segment are inescapable and substantial. To make construction great again, payment issues must be solved. All the players must exchange payments they are accountable for, per their respective agreements, until all in the payment chain are satisfied. Consider just how much project time and money would be saved if something like this were possible. It is.