Responding to a persistent problem in the construction industry—the burden on subcontractors to float the cost of labor, equipment, materials and other expenses until the general contractor gets paid—Turner Construction is rolling out a supply-chain financing program aimed at speeding up payments to subs.
“It’s a win for the subcontractor,” Mark Boyle, Turner’s chief procurement officer, tells ENR. “They know, date-certain, when they will receive their money, and it takes a burden off of their credit line and the cash flow in their business.”
Believed to be the first of its kind in the U.S., Turner has partnered with software company Textura Corp. to enable what the general contractor calls its Accelerated Payment Program. Turner plans to launch the program, which was announced on Dec. 2, early next year. Textura’s flagship Construction Payment Management platform is a prerequisite to enable early payment.
Turner is the first participant in Textura’s Early Payment Program, which is backed by a $10-billion revolving line of credit from Greensill Capital, with assistance from third-party lenders and capital markets through Morgan Stanley. General contractors using CPM now will have the ability to offer similar supplier-financing options, as well.
Fee for Payment
Textura estimates that subcontractors participating in the program would be paid, on average, 45 days faster. With a projected take rate of 45% among subcontractors on the Textura CPM platform, the software company estimates the credit line would support approximately $82 billion in subcontractor invoices and $250 billion in total construction spending per year. Turner alone signs some 24,000 contracts on 1,500 projects worth a total $10 billion annually, the contractor notes.
Subcontractors would pay for the cost of the program by paying a small fee—essentially a discount—that covers the cost of capital, technology and administrative expenses associated with the loan, which Turner would be responsible for repaying. In most cases, the fee would be less than 1% of the cost of an invoice, Boyle says.
“In effect, what Turner is doing is using the strength of their balance sheet to ensure that subcontractors across the United States are able to improve their financial position,” says Lex Greensill, CEO of the eponymous lender, who adds that the Textura platform, which facilities subcontractor payments and lien waivers, offers low risk to lenders.
Specific terms of the early financing program are to be set by Turner and other participating general contractors, according to a Textura spokesman. The expected turnaround time for GCs to approve subcontractor invoices is about 10 days. Then, approved invoices, minus the fee, would be paid “within days," the spokesman adds. The advance payment would not affect retainage, a Turner spokesman notes.
Additional liquidity could help to take the strain off subs in a time of increasing construction work, says Pat Allin, Textura’s chairman and CEO. “The structure that exists in commercial construction basically has a share of the work in process being funded by the subs. We’re changing a very fundamental aspect for those subs who want to enroll in the program.”
The news also comes at a time when some investors in Textura, which went public last year on the New York Stock Exchange, have criticized the company for overstating its earnings potential. A shareholder lawsuit filed against the company on Oct. 7 awaits class-action certification, but Allin says, “I am not concerned about it whatsoever.” In the third quarter of this year, Textura saw revenue grow to $16.4 million, a 51% annual increase. The company booked a net loss of $7.5 million, down from a loss of $8.3 million during the same period last year.
Globally, Allin says Textura’s offices in Australia and the U.K. also stand to benefit from the Early Payment Program announcement. “We’re seeing the industry globalize a little bit more, and we think EPP will be helpful in that regard,” Allin says.
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