3 minute read
Legal & Business
Dr Stuart Kings
is NEC4 Drafter, Co-Author of NEC4 Practical Solutions and Consultant at project and contract management software firm, Sypro
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CAN DIGITAL SYSTEMS MAKE LATE PAYMENTS A THING OF THE PAST?
Payment has always been a hot topic of debate in the construction industry – and with the Government’s Construction Playbook putting emphasis on ensuring fair and prompt payment, the discussion is unlikely to go away anytime soon. Director at Sypro and NEC4 Co-Author, Dr Stuart Kings, discusses further.
When a company is not paid on time, this has an onward impact, meaning that payments further down the supply chain may be late or missed due to the subsequent cash flow issues that may arise. For small businesses, this could be the difference between staying in business or going bust.
This is highlighted even further when we examine the ongoing impact of the pandemic on the financial situations of SMEs. Data from insolvency practitioner Real Business Rescue’s latest Business Distress Index for Q1 2021 reveals that 96,067 SMEs in our sector are considered significantly distressed – up a startling 21% from the previous quarter.
We particularly cannot afford to lose SMEs within the construction sector. They play a central role in building the future, but also in the delivery of real, localised social value too – making sure that our work passes on true, real-life benefits to local communities.
As with many issues facing our industry, the answer lies in effective collaboration – with cloudbased technology being the effective delivery mechanism.
Construction is well known for talking about collaboration, and indeed most contracts – like the NEC suite – are specifically designed to help parties collaborate and manage their projects. Indeed, the reason for the latest NEC update was to provide governance and surety on the financial aspect of construction projects for contractors and clients alike. However, the true collaboration and efficiencies are unlocked when contracts are managed digitally. Management systems – like Sypro’s Contract Manager – allow us to fully manage the payment process and act as a portal to manage finances throughout the entirety of a project.
When we consider the different contract types that will be used across the industry, the benefit of easyto-use online systems become obvious. For example, there is a key difference between the NEC3 and NEC4 Engineering and Construction Contracts (ECC) in triggering payments. Under NEC3 ECC, the project manager previously had to assess whether or not an application for payment had been made. However, under NEC4 ECC clause 50.4, the contractor is obliged to submit an application for payment in order to receive said payment, otherwise the amount due is paid at the previous assessment rate or lesser amount that the project manager assesses. If the contractor does not submit this application, it may not be entitled to payment for that assessment interval – meaning that the actual payment may not accurately and fairly reflect the work delivered.
We must remember that many contractual payment terms are subject to ‘time windows’ and recognise how a digital management system can provide clarity on the all-important dates attached to any actions or contractual obligations.
For example, new wording in NEC4 ECC’s clause 53.1 dictates that the project manager makes a final assessment of the final payment amount due, which could be up to four weeks after the supervisor issues a defect certificate, or 13 weeks following a project managerissued termination certificate. A final payment is then to be paid within three weeks of the final assessment – or a different period if stated within the contract data.
A digital management system will provide clarity on what dates actions are carried out – such as the issuing of a defect or termination certificate, meaning it will be easy to see and hard to dispute any missed timespan terms attached to any contract. This digital clarity should also allow the benefit of easier dispute management, as well as lower levels of disputes raised in the first instance. Uptake of digitisation has been growing fast in the UK – driven particularly by remote working during the pandemic. However, we must make sure that we are digitising back offices at the same rate as processes and technologies, which is where tools like contract management software really show their strengths, allowing us to effectively work on all aspects of a project in one central system.
