Start Looking Forward

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By Steve Wightman|BuildPay CEO

The construction industry, as we know it, is changing rapidly and technology finally has a ticket on the train.  There are going to be rapid benefits to an industry without productivity improvement in 80 years. Processes will be more efficient, effective, and transparent, so that our industry can be more focused on getting back to what we like: building.

Probably the most unpleasant task across all construction is chasing payment.  Failure to collect has taken down many builders. Pursuit of payment is often burdensome, contentious, and downright unfair.  It takes time away from doing the many other tasks that have a real impact on project delivery and profit margins. When it’s not flowing freely the pain gets passed to the next guy, and the next, and on-and-on until the suffering has been distributed to everyone.  The further your role is from the funding source, the harder it is to improve cash flow.  Many a night of sleep has been lost wondering if the funds have somehow leaked out to pay for work on another project.  No matter where you are in the chain; if there are upstream financial issues you are rarely going to know about it until it’s too late. 

When I managed my first construction project I learned a lot, but was always curious about one thing:  If funds were being provided by a financial institution to fund construction, why wasn’t the distribution of those funds controlled more in line with the interests of all the project players and even the funder! 

The reasonable answers I got supported the role of the person I was asking.  I remained curious, but was green enough to be satisfied that withholding payment was necessary to assure performance despite potentially inhibiting performance at least as much as motivating it?  I eventually got pretty good at it and had success. 

It’s not a big secret that the construction industry has the worst cash flow of any industry in the world.  It’s not like threatening to withhold work and threatening to withhold payment aren’t an integral part of everyday tactics between every pairing.  I wondered why no one wanted to find a way to somehow be assured that the funds for their work/materials could not jump the rails between all the stops.  Schedules and productivity would also stay on the rails?  Waiting for it to flow to you is rough, but not knowing if it exists, or where it is, irks even the most patient of us. 

So why the secret?  How hard can it be to see into the funders account?  Almost always, the funds are in an account at a funding institution, who usually has a stake in assuring the work is done without liens.  How hard can it be to make the funds-flow transparent?  We can make drones that see and measure the site, but we can’t see and measure the project’s payment flow?!?  Seems doubtful. 

 

The fact is, every link in the payment chain needs to hold money as long as possible to protect themselves or to use as working capital, which, by-the-way, our industry has the least of for all industries in the world.  Our construction management universities teach students these tactics. 

“Transparency” is nice to have looking up the chain, but not so attractive to share down the chain.  It seems like working capital issues must be solved before transparency will be allowed. Or is it, that transparency solves the working capital problem? 

We’ve reimagined construction with payment transparency. Transparency from the funder all the way down the project payment chain would clearly reduce risk.  If the funds don’t exist, you don’t take the job or provide the materials.  If the funds do exist, and have not leaked out of the project’s chain, it’s easier to compel their release.  Projects paying faster get done faster.  Projects that get done faster are more profitable.  Faster and more profitable projects are move competitive and would have better retention.  Materials would cost less and be more available if there were less risk.  Using technology to achieve transparency is, technically, not very difficult.  Aligning a long and wide hierarchy of users is not so easy. 

Then we asked ourselves; if you can deliver transparency, why not use the same technology-connections and transparency to allow users to control the funds? Just like they do today, but no parking the funds in the bank accounts of link after link.  Assure virtually all the current rights, permissions and controls. Move the funds direct from the institutional funder to the end provider of work or materials.  Remove any incentive or need to hold funds for working capital.  No payment delays. No risk. No liens. No need for trade credit at material providers. 

So, we built it. The results were as expected: faster, cheaper and less contentious projects to put you back to work. 

About BuildPay

BuildPay offers patent pending financial technology to construction-funding institutions to connect the entire construction payment chain; enabling fast, direct payments, quicker build times and more competitive pricing without liens and delays tied to accounts receivable. Construction the way it should be. #GotPaid

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All construction has one thing in common: it’s all supposed to get paid for. BuildPay is the only company that’s connected at every stage of the project lifecycle and is leveraging advantages from the promises that we make sure are kept.

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Solutions

Government

Insurance Companies

Banks & Lenders

Project Owners

General Contractors

Subcontractors

Material Providers

Material Manufacturers

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.