Payment practices within the building sector both globally and in Australia are being transformed as cloud-based software helps to drive greater transparency, accountability and efficiency in payment processes, two leaders in construction technology say.
As states such as New South Wales introduce tighter security of payment laws, Mike Antis, Global Vice President of the Textura cloud based payment management service within the Construction and Engineering Global Business Unit of Oracle and James Kellagher, Regional Senior Manager, Textura at Oracle Construction and Engineering, say a worldwide transition in construction payment practices is underway.
Historically, Antis says construction has been a ‘slow-paying’ industry. This has created problems for sub-trades who perform most of the work and yet require cash-flow to remain viable. It is also problematic for the broader industry and economy as poor cash flows drives higher levels of construction industry insolvency.
Accordingly, he says governments both globally and in Australia are demanding greater accountability in contractor payments whilst private industry players are acting to better manage payment processes.
“What we are seeing on a global basis, whether it be government or private industry, is people trying to better manage the payment process and payment timeliness down into the supply chain,” Antis said.
“In the construction industry specifically, what we are seeing globally is that it is historically a slow paying industry. That is starting to have a negative impact not only on the industry itself but the economy locally, regionally and internationally.”
“In Australia, with security of payments, what I think you are finding is that government is trying to crack down on slow or late payments which are detrimental not only to the industry but the economy in general. If contractors can’t stay afloat, that has a dramatic impact not only in industry but elsewhere.”
As this is happening, Kellagher and Antis say new software tools are helping to facilitate change. Speaking of their own Textura payment management platform, Kellagher and Antis say the system performs several important functions.
- Storing all payment claims received from subcontractors in a centralised location, including details of the claim as well as any further supporting information which is required.
- Automating many functions, such as the generation of progress claims, notifying project teams that a claim has been received, generation of payment schedules and the checking of compliance to ensure that all information needed for the claim has been received.
- Inclusion of an analytics function through which builders can set thresholds in respect of security of payment, identify non-compliance and take mitigating action whenever a threshold is breached in respect of a claim, and
- Integration with most enterprise resource management systems to enable a seamless flow of data across financial systems.
According to Antis and Kellagher, all this generates benefits across the supply chain in terms of transparency, visibility, efficiency and accountability.
For clients (government or private), these systems provide visibility regarding the flow of payments through the supply chain and enable verification about whether or not payments made to contractors are flowing through to subcontractors and suppliers.
This is important as payment problems on projects can jeopardise both the delivery of the project in question and the corporate reputation of the project owner.
For builders, the automation referred to above enables them to streamline payment processes, free up staff/management time for activities of greater value and to get money to their subcontractors more quickly.
Having documents stored in centralised locations, meanwhile, enables easier access to relevant information where an issue or dispute arises in respect of a claim.
Finally, the centralisation of information within a single database and the ability within the aforementioned analytics function to set parameters which if breached would generate warning signals helps them to ensure that they are complying with all relevant aspects of Security of Payment law and to identify any issues which may lead to breaches of the law and actions against them. This further enables them to focus on higher value areas of their business with the confidence that they can easily identify payment issues or problems.
Finally, payment software systems are also benefiting subcontractors and suppliers.
The transparency which these systems deliver to project owners in regard to payments also benefit subcontractors and suppliers, who can go about their work in the knowledge that project owners have visibility from which to hold head contractors accountable for ensuring that money flows through the supply chain as it should.
As well, these systems enable claimants to receive payment faster as automation helps to speed up builder administration and automated checking systems identify errors or missing information which may otherwise hold up the claim.
Antis and Kellagher’s comments come as governments throughout Australia look at better ways to ensure that subcontractors and suppliers receive payments when they fall due.
In Queensland, the government introduced new laws in 2017 which required contractors on projects worth more than $1 million to establish special bank accounts into which money from principals is paid and from which money is paid directly to suppliers and subcontractors.
In New South Wales, new laws which came into force on October 21 under the Building and Construction Industry Security of Payment Amendment Act 2018 (NSW) saw the abolition of ‘reference dates’, the shortening of maximum payment periods from 30 business days after the date of the payment claim to 20 business days after the date of the claim, a new ability for subcontractors and suppliers to lodge payment claims in cases where construction contracts are terminated and the ability of claimants to withdraw application adjudications.
At a Commonwealth level, a review prepared by John Murray AM which was published in late 2017 and released last year made 86 recommendations for best-practice security of payment legislation across seventeen areas.
These efforts follow the Senate Inquiry into construction industry insolvencies, which found in 2015 that a culture of non-payment existed across the industry and that suppliers, subcontractors and workers and taxpayers were losing around $630 million each year through unpaid debts.