New research from Xpedeon, a construction ERP platform, has shown just how far the frustration of delayed payments reaches
The research shows that 53% of construction professionals have experienced retention releases or final accounts delays in the last year.
The research was conducted via a survey of over 500 senior leaders at UK construction companies.
Confidence is low in WIP
The findings further show that only 16% are completely confident in a live WIP system with margin reporting before the end of the month, and 13% say completed work is reflected as coded cost data in finance systems on the same day.
This delay often leads to margin erosion, as the issue is found too late, and the lack of live data means that forecasts are often just interpreted guesses, when they could be better based on live data, say Xpedeon.
51% have reported invoice or payment delays, while 59% report mobilisation delays due to documentation gaps, and 21% have lost or downgraded tenders due to documentation issues.
Vivek Sharma, executive director at Xpedeon, said: “The issue for many firms is that, as work moves through the project lifecycle, approved records, evidence and decisions are not always staying connected between site, commercial and finance. That makes it harder to trust cost positions, release cash on time and act early when margin starts to move.
“For large construction businesses, this is no longer just an administrative frustration. When records do not move cleanly from site to commercial and through to finance, cash gets held up, reporting confidence weakens and commercial teams lose time reconstructing positions that should already be clear.
“For businesses with systems already in place, the issue is whether those systems keep approved records, evidence and decisions connected as work moves from project award to close out. Where they do not, final accounts take longer to agree, retention is delayed and live financial reporting becomes harder to trust.”
The full Xpedeon report can be found here.
The banning of retention payments has been a controversial move
Last month, the government announced the banning of retention payments and reforms to late payment punishments, including a 60-day cap on payment terms for all large firms when paying small suppliers, as well as a mandatory late interest payment of 8% above the Bank of England base rate.
Mark London and James King of Devonshires discussed what impact this may have. While many agree that retention payments have long caused issues for the industry, some concerns over its implementation remain.
They write: “This announcement has been hailed as overdue by many, but it remains unclear whether banning retention will deliver the intended benefits for SME contractors and subcontractors.
“Retention has historically provided a cost-effective, straightforward means of enforcing obligations under construction contracts. In a post-Grenfell regulatory environment, ensuring that construction works meet safety and quality standards is a high priority. Removing the ability to withhold retention would arguably increase the risk that defects remain unrectified, particularly where a contractor is unwilling or unable to return to the site.
“The challenge lies in striking the right balance between the need for cash flow and the need to maintain effective quality assurance.”
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