Surviving these crazy economic times in construction
About the Author: Peter Houk
As you may know, the nature of our work at Prelien Pro gives us front-row seats to some of the most spectacularly convoluted payment issues in construction.
Most are garden variety and resolve themselves with a few calls and maybe a sternly worded demand letter. Others are gigantic industry-shaking events that involve bankruptcies, liens, and throngs (yes, I said ‘throngs’) of lawyers. But that was all BEFORE the heat of persistent inflation straining budgets, the chafing pain and frustration of post-COVID supply chain issues, the 'Great Resignation' making Swiss cheese out of org charts, and the capital markets acting as jittery and unsure as a Red Bull addled pre-teen at a school dance.
Much of what we're seeing NOW seems to follow a predictable four-step pattern:
- Contractor bids jobs that stretch internal capabilities, typically out of necessity.
- Contractor loses a key office team member (or several) and suddenly corners are being cut regularly as staff and roles attempt to realign.
- Project financing at the owner/lender level sees some 'wobbles' and they begin playing hardball attempting to keep everything from going sideways.
- Contractor scrambles for payment remedies on a large portion of their scope (somewhere either side of a third is common) with remaining staff dealing with information gaps, discontinuity of AR processes, and often miising or flawed lien rights.
So, how do you protect yourself in times like these? Here are a few suggestions:
- Have a plan to get paid. Every time. Implement a PROCESS for every project that doesn't change just because "we've worked with them before."
- Communicate and confirm changes on projects that impact billing. Every time. Change orders are a notorious source of billing disputes and often go completely uncompensated.
- Leveage your statutory payment remedies. Every time. Understand and take advantage of your lien rights, promt pay regulations, and other tools put in place by legislators specifically to help keep contractors in business.
Despite ample backlogs, the reality is the construction payments landscape is now more volitile and risky than ever. Act accordingly.