Turner Rolls Out Early Payment Program for Subcontractors
New to U.S. Firms
Such programs in construction are currently limited to the U.K., where the government last year introduced a supply-chain financing program that Balfour Beatty and other general contractors now offer. Unpaid subcontractor bills are a $47-billion problem annually in the U.K., spurring other measures there—such as a 2008 Prompt Payment Code, according to government records.
Since the early-payment programs were introduced last year in the U.K., participating lenders have seen a higher take rate among construction businesses than in other industries, such as retail, manufacturing and telecom, in which supply-chain financing is a more common way to shore up the cash flow of smaller firms, Greensill says.
“This is unique in the United States, and I think we’ll see it will actually make a meaningful difference and be embraced by subcontractors,” Greensill says.
However, some argue that the supply-chain financing model, while perhaps helpful in relieving the pressure of low liquidity in the construction market, may do little to ease payment abuses.
“I think the bottom of the chain should be scratching their heads,” says Scott Wolfe, CEO and founder of Zlien, an electronic lien manager, who adds that many subcontractors already have slim profit margins, even before discounts. Early payment “does solve a problem, but whether it is the fair way to solve the problem is the question,” he says.
Still, the concept may catch on if Turner is successful, says Don Gregory, director of the construction law practice at Kegler Brown Hill + Ritter, which also is the general counsel for the American Subcontractors Association.
“Everybody in the industry is complaining that payment is getting worse, not better,” Gregory says. “So, anything that remedies that in exchange for a modest discount would be warmly welcomed, in theory.”
Offering early payments may also give general contractors a competitive advantage and help to drive down construction costs, Boyle adds. "We believe it will increase the amount of subcontractors we will get to support our work with our clients, which, in turn, helps our clients," he says.
