CHICAGO, IL May 3rd, 2019 – BuiltWorlds featured a contributor article written by BuildPay CEO, Steve Wightman, that focused on the “need for speed” in the construction industry and ways that new technologies can help achieve that speed for payments on the job.

An excerpt from the article is below. To read the full piece, visit builtworlds.com.

“Built for speed” is one thing construction payment is definitely not.  If you have it, you’re holding it. If you don’t have it, you’re trying to run on a tight rope.  At any given time every player on any construction project is doing one or the other.  Sometimes payment is a big problem, but usually, it’s just a big nuisance.  It’s never not a factor.   At the very best it’s a risk, cost, and time-adding productivity drag.  The average accounts receivable (AR) for the construction industry is an abysmal 66 days.

Recently, I spoke to a large subcontractor who had decided he was in his last year of doing business.  He prophesized that the construction apocalypse would come in five years.  “Time to cash out.”  He was done being sandwiched between chasing his money and pressure from material providers to be paid.  He just wanted to build.  The data worldwide supports his frustration.  His prophecy?  Maybe not so much.

Building something, anything requires many organizations to come together, at least on the first day:

The funding institution will have all their processes in place, the owner’s contracts will clearly communicate their objectives, the plans and specifications will have been signed off on, the contract will have been awarded and subcontractors will already be on-board.  The synergistic planning part is done, and everyone is on the same page; they all envision an on-time and under-budget project. 

Then comes the reality of the construction world:

 

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BuildPay, LLC is a payment & construction tech startup located in Troy, NY. BuildPay’s patent-pending SaaS platform connects the entire construction payment chain to their shared project ledger, leveraging transparency and conglomerated buying power to build & get paid faster, while reducing risk.  

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Lenders: Competitive Advantage


The golden rule sums up lenders’ advantage the best. “Whoever has the gold, makes the rules.”  While the bank has the gold, they compete with other banks, who also have the gold.  Their rules are necessary, they do not need to be changed.  There are many companies that argue the execution of the rules are inefficient, but efficiency really does not substantially improve protections for banks or add construction success for customers.  A shared ledger allows banks - as the trusted source of project funding - to set the rules for project payment releases, monitor the project health and all but eliminate any chance of lien.  Cash-flow-lubricated projects attract competition to accelerate work at more competitive prices with superior protections for virtually every player in the chain.

Insurance: Competitive Advantage


Insurers’ obligation to pay is the most potentially powerful tool insurers have, but is very difficult to systematize and scale given the daunting challenges of insurers collaborating with a huge, highly fragmented and complex construction industry.   Since all construction has chronic payment risk and inadequate cash flow, it makes sense for property insurers to use their irrevocable obligation to pay to attract the construction industry.  Since cash flow is most attractive at the project level, inter-industrywide collaboration between insurers and the titans of construction is less important than mechanizing a platform that can be scaled from one project to many thousands of projects.

Government: Competitive Advantage


In some cases, opportunity for small subcontractors (with limited financial wherewithal) is only one part of the total equation.  Some very talented and well run companies still cannot automatically get the trade credit, working capital and cash flow they need to keep pace.  The struggle is unnecessary when the government funding source can allocate contractor-planned and approved payouts directly to these subs.  Similarly, the subs themselves can allocate material budgets to the ledger to enable them to procure all the materials they need without the material provider taking on risk.  Working capital constraints are greatly alleviated, cash flow accelerates and there is no need for trade credit.  Government agencies can see activity on the ledger for each bid project.  Bids improve.  

Why would construction lenders need to change their highly refined processes?


Success for construction lenders means providing their customer with the funds needed to build the project they want.  To protect the bank’s interests, protective draw schedules are put in place to assure the project is done – and done without liens.  Albeit necessary protection, slow draws cost project time and money.  Some oversight, work and material providers avoid working on bank-funded projects, charge more or require large owner-deposits. This is especially true for classes of product that are fabricated offsite and installed after fabrication is complete, when providers are still not paid until after the next draw.  Customers pay interest on capital needed for construction, with process requirements attached that add to the construction cost and delay project delivery.  In a world where settled business models (think taxis) can be unsettled in months (think Uber), this one probably has disrupters’ attention.

Why do property insurers need to change?


Success for property insurers is making their customer whole as quickly as possible and protecting their loss ratio from significantly inflated reconstruction payouts; especially overblown demand-surge prices following disasters.  Insurance reconstruction is the most inflated of any type of institutionally funded work and is getting worse.  Claim departments are startled by the rate of new disadvantages to mitigate, using tools that have not been substantially redesigned in decades.

Why would government funded projects need payment changes?


Many government entities endeavor to help smaller subcontractors and material providers have the opportunity to be awarded contracts.  In some states women and minority owned enterprises are guaranteed a portion of publically funded construction.  Most contractors we talk to are supportive of this mandate, but it comes with unique challenges.  Providing opportunity alone does little to help solve problems with deficient working capital, trade credit at material providers and enough rapid cash-flow to keep up with fast-paced project schedules.  In some cases contractors help these subs as much as possible, but obviously there are some challenges beyond their control.  These problems work their way to the top like air bubbles in concrete.