Credit where credit’s due—Improving security of payment and liquidity in the construction industry, calls on government and other clients to stop treating construction contractors and suppliers like financial institutions.
The construction industry has essentially had to bank roll projects on behalf of clients. It is one of the few industries operating under a cash negative payment regime where work is undertaken for third parties without payment until after materials have been ordered and fixed to site.
Airbus requires 20 per cent of the capital costs to be paid upfront before manufacture of a new plane and with a price tag of US$445 million—an investment that is comparable to a mid-range construction project.
Construction projects are no different to any other significant purchase and should be financed through institutions that are appropriately set up to do this.
The current construction boom combined with rapidly increasing prices and shortages of materials and labour have negatively impacted business balance sheets and cash reserves resulting in an increase in insolvencies.
Prompt and fair payment is essential for the health of the industry. More upfront payment would flow down through the industry the same way risk currently does but this would be positive.
By tying up industry capital, clients are missing out on the opportunity for increased innovation, reductions in carbon emissions, increases in productivity and reductions in the overall cost of construction.