A new report has uncovered the continued poor payment practices in the construction industry.
The report draws from payment specialist Payapps draws attention to what the firm calls the ‘shockingly inefficient payment processes that UK subcontractors are still subjected to.’
The report surveyed 127 subcontractor firms to identify industry trends and attitudes towards submitting applications for payment and contractors’ payment processes. The report revealed that the majority (79%) are almost always paid late.
With less than half (46%) of firms also regularly receiving feedback or payment notices on time, the report highlighted an increasing need for greater transparency, reduced admin time and standardisation within applications for payment processes.
The report found almost three-quarters (73%) of subcontractors experienced routine disputes over payment applications and processes. Nearly eight in ten (79%) said ‘variations not agreed’ between parties are one of the top five causes of disputes over applications for payment, while 74% reported that valuation differences and time-consuming back-and-forth over completed work are within the top five reasons.
The firm said that payments are becoming a systematic problem, which the report showed contractors need to urgently address as it is ‘starting to seriously affect their operational capabilities.’
The research uncovered the growing, negative trend that recurring disputes erode subcontractors’ trust in being paid on time – even leading some to blacklist certain contractors. Almost a third of respondents (29%) said they had avoided doing business with a contractor whose application for payment process proved ’too difficult’ in the past. In addition, 84% of subcontractors said that a contractor’s reputation influences their decision to bid or price future work for them, while 68% have increased their rates or added risk margin due to slow or unreliable payments.
The authors said that the figures are hard to ignore, given the tight-knit community that subcontractors operate in, and the power of word of mouth, especially as skilled labour becomes increasingly scarce and competition for contracts fiercer. They said: “Contractors are being judged, and good payment practices are becoming a competitive advantage. “
Payapps also found that inconsistent instructions and confusion around payment application formats contribute to a significant loss of time for subcontractors’ already-stretched finance teams.
More than half (55%) spent over 20 hours a month on general admin, and almost a quarter of those polled (24%) submit between 11 and 30 applications a month. With respondents estimating that each applications takes 1.5 hours, that accounts for the best part of a working day on average each month, the authors said, which, with better processes and digital support could be clawed back from higher value tasks. There is also a question of quality, the authors added, with more than a fifth (22%) of applications often or always requiring corrections or additional information.
Anthony Puma from Payapps said: “These results are troubling, especially during such a tough time for the sector; whilst margins are tighter than ever, there should be no reason to normalise delayed payments. The data proves that both parties are losing time and money to outdated, inconsistent processes and much of that is down to subcontractors having to relearn a different process for every contractor they work with.
He added:
It’s an unfair situation and needs to be tackled sooner than later, especially when the sector eventually picks up pace and project delivery spikes. We know fro the research that greater consistency and transparency instils greater confidence in subcontractors when it comes to a contractor’s payment process. Standardising and digitising the application for payment process gives people their time back to do the work that matters and helps them rebuild their trust in contractors.”
Payapp’s parent company Autodesk is a sponsor of London Build Expo.
