Slow payers cost General Contractor AND Subcontractors $64 Billion a year.

According a recent article on www.constructiondive.com, “a new study has found that slow payments are costing general contractors and subcontractors $64 billion a year. This is a $24 billion increase from the 2018 study from construction finance platform Rabbet.”

“More than 60% of subcontractors said they have chosen not to bid on certain projects if the owner or general contractor has a reputation for paying late, and 72% said they would offer a 1% to 5% discount for quicker payments, saving the construction industry approximately $44 billion. Only 39% of subcontractors reported that they are able to cover the late payments with cash on hand, forcing them to incur the costs associated with using lines of credit, credit cards, personal savings and even retirement savings. General contractors have it a little easier when it comes to slow-paying owners, with 35% responding that they have to look to sources outside their balance sheets for alternative financing. About 22% of general contractors reported that they sometimes hold back subcontractor payments to increase their own working capital, although contractors with less than $5 million in annual revenue were most likely to practice this.”

“The tendency for some owners to make slow payments only drives up the cost of the project, by about 5.3%, according to the Rabbet study.”

“One way that general contractors can help to ensure on-time payments is to perform a little due diligence prior to signing its own contract with the owner. This would include asking for proof that the owner has financing lined up for the project. In the AIA’s A201-2017 General Conditions of the Contract for Construction, general contractors can ask for this proof before the project begins or if the owner falls behind in its payments after the project has started. A letter of commitment from the bank or other lender, financial statements, bank statements or a bond commitment from a public agency are all acceptable means of verifying that the necessary funds are in place?”

To read the full Dive Brief Article click HERE to go to the Construction Dive website.

If you have any questions on what you can do to better protect yourself, please give us a call at 407-786-7700.