Payment system solves subcontractors cash flow problem

Protecting subcontractors from cash flow pain was at the heart of Jackson McDonald principal Hilary Hunt’s drive to simplify project bank account documentation.

The new documentation, which has been used by the City of Fremantle on the Kings Square development, has recently taken out the top gong in the innovation category of this year’s National Australian Women in Construction awards.

Project bank accounts were mandated by the State Government for government non-residential building construction projects worth more than $1.5 million. They require payments from principal contractors to be deposited into a trust account with builders required to pay subcontractors at the same time they receive payments.

The system was devised to decrease payment times and reduce stress on subcontractors, who struggle to recoup funds when builders go bust and often wait up to 42 days for payment and even longer for late payments.

Jackson McDonald Partner Hilary Hunt on the benefits of project bank accounts

However, Hunt said the existing government documentation on how to set up the bank accounts was very complex and costly to implement, including the requirement for a form for every payment.

Over three months she came up with an easier way for local governments, who are often the principals of the contracts, to manage payments. Her documentation puts the onus of the administration of the account on the builder and did not require additional local government staff to manage the payments.

“Nowadays, you’re punching stuff into your platform with your bank, it’s as simple as that,” Hunt said.

“There was no need for all this additional paper, and I know from talking to a number of people before we started this exercise that they just said that the existing government system is so complex and it didn’t need to be that complex.

“So we took as much of that form filling as we could out of it and just turned it into a an easy way to manage the payments.”

Feedback from the City of Fremantle has been that subcontractors are safe from cash flow problems and are better able to pay their staff and suppliers.

“The other interesting thing is that we’ve had feedback from the builder involved in the City of Freo project, that they are actually getting better pricing from subbies,” Hunt said.

“Builders at first were all ‘we don’t want to do this, this changes everything, it’s really bad for us’ and there’s still a lot of commentators out there who are saying that, but we’re getting feedback to say no, the subbies are sharpening their pencils because they know they’re getting paid every month so they can give better pricing.”

While “excited and shocked” to win the award, at the time she didn’t initially consider the documentation to be particularly innovative.

“But when you look at the feedback from the City of Freo and they’re saying ‘yes this is’ because it’s established a system that local government is prepared to use to make everybody’s life better all around.”

She hopes the payment system will be adopted by the private sector as it provides early warning signs that a builder is in financial strife and helps with cash flow management, which is one of the biggest issues faced by subcontractors.

Find out more about Jackson McDonald, a proud CCIWA Member, here.

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