For our series of Blogs on Construction Management (CM) we look at the cashflow advantages of Construction Management via Customer to Trade Contractor payments.

Cashflow Advantages of Construction Management

Under CM the Customer is in contract direct with the project Trade Contractors. This arrangement is managed and administrated by a Construction Manager, such as Scribe. The Construction Manager certifies payments which are then made direct by the Customer.

Direct Trade Contractor payments means the Customer, and their Funders, know exactly where the money is going. This allows for better cost control and lower project costs as detailed below.

Without a Main Contractor intermediary, there’s less risk of financial contamination. Payments are not subject to Main Contractor mark-ups or delays. Payments go to the project supply chain, not syphoned off to cover other loss-making Main Contractor projects.

With CM there is no Main Contractor layer of dispute impacting upon payments down the tiers. Also there are no Main Contractor financial year end targets influencing project cashflow.

As highlighted in our Cost Transparency Blog, Main Contractors are often over certified. They can be some 30%+ cash positive by manipulating interim applications for payment.

Direct CM Trade Contractor payments align outflows with actual progress.  The project supply chain is not subject to unfair Main Contractor payment practices. And the Customer has confidence in paying only for what it complete.

With Trade Contractors paid direct they are truly incentivised to perform. It fosters a more collaborative approach to delivery across the project team.

Eliminating the Main Contractor reduces the project cost. The Customer does not have to pay for their profit and risk uplifts on top of the Trade Contractor’s. The Construction Manager’s fee can be over 50% less than a Main Contractor’s margin.

Direct relationships with Trade Contractors can lead to more flexible procurement options. This could be just-in time ordering or leveraging Customer surety for reduced deposits. In turn this can reduce the need for large upfront capital and minimise holding costs.

These CM benefits contribute to more streamlined financial management of the construction project. This can lead to cost savings and a more predictable and efficient cashflow.

Direct Trade Contractor payments can create an administrative and finance burden on Customer. Although Scribe have solutions to ease this pressure which we can further discuss.

Summary

There are many cashflow advantages of Construction Management. It offers significant financial benefits over Design & Build and Traditional procurement routes, including:

• No Main Contractor cross-contamination of payments
• No delays to Trade Contractor payments
• Reduced outflow with no Main Contractor overmeasure or markups
• Fosters a collaborative approach to project delivery
• Customer cost savings
• More predictable, efficient and true project cashflow

Contact Scribe to apply the Cashflow Advantages of Construction Management on your project. Please comment below, and read our other Blogs.

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