Those at the end of the supply chain in some ways effectively finance building construction. At the same time, they’re often the last to receive payment. A payments expert says there is a practical solution.
Mike Antis, Global Vice President of Oracle Textura Payment Management Cloud Service, says that Australia’s construction industry is facing a wave of uncertainty.
“The collapse of Probuild sent shockwaves through the industry,” says Antis. “In the supply chain, there’s a lot of fear about instability right now. There is uncertainty around assurances that firms are going to be paid and that work is going to continue. The outlook is murky at present.”
Antis is speaking after the release of The Payment Management Playbook, an eBook from Oracle that outlines a new way forward for stakeholders in the construction industry. He says that the payments process in construction globally has always been opaque, but that many regulatory protections are not fit for purpose.
The construction industry is unique in that, by and large, the firms that have the most difficulty accessing inexpensive working capital are also the least able to raise funds based on the balance sheet of their business.
“They’re the ones who are putting work in place and buying materials earliest,” says Antis. “If you think about it, the materials suppliers and the subcontractors are the ones that are financing construction projects, because they’re the first ones to put work in place, and they’re the last ones to get paid.”
Typically, billing terms are dictated by the project funder, with the pipeline clogging as people further down the chain have the longest days payable outstanding. At a time when supply chains are already under severe strain this burdens projects with delays and volatility, which can weaken business relationships.
Levelling the playing field
Antis says that in Australia, solutions such as project bank accounts were supposed to solve many of these issues, but while such concepts may have a role they create an additional layer of administrative burden and tend to disadvantage some parties in the supply chain.
By comparison, in New Zealand the Construction Contracts Act (2002) protects retention money withheld under commercial construction contracts. This helps to ensure a fair, balanced and appropriate payment regime. And provides a fast and cost-effective adjudication process for people with disputes.
“There needs to be a middle ground where owners and governments can have better transparency to ensure that the supply chain is being funded properly, but also still leaves power in the hands of contractors who are running on small profit margins and are taking on incredible risk,” he says.
“That’s what Textura does — it creates an even playing field where people can see what’s happening, while maintaining control where it is needed. Textura brings a level of governance that is missing globally in the payments industry.”
With automated workflows to ensure paperwork is accurate, the program enables approving entities to go through their approval processes as quickly as possible while maintaining a high level of protection and accuracy.
“Textura is a solution where everyone can benefit — the owners, the builders, the subcontractors,” Antis says. “There are different benefits and value propositions for each party depending on where they sit in the supply chain.
“Ultimately, the solution wasn’t designed to advantage any one organisation or any one player in the hierarchy — it’s designed to create value — and ensure that people are paid faster the right way.”
At a time when there’s increased focus on compliance and diversity in procurement, Antis adds that building in a layer of transparency and accountability is critical.
“As the industry is working hard to incorporate Indigenous Australian owned businesses into supply chains, it is incumbent on all of us to ensure that those parties not only have access to this work, but that they are being treated fairly.”
To learn more about how to streamline invoicing and payments and improve supply chain governance, download Oracle Textura’s Payment Management Playbook.