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Standard Payment Terms For Subcontractors In the Construction Industry

As cashflows get tighter I currently have a disagreement over what payment terms are the industry standard for progress payments within the construction industry.

Terms are normally specified in the contract however what are fair terms? The main contractor will obviously try and suit themselves as to how late thay can pay.

My understanding however is that standard payment terms would be 30 days from the date of application for payment, stretching to 45 days being the latest date that the contractor can pay.

It is also my experience that Contractors regularly ignore the due dates and stretch credit to breaking point for a lot of small subcontractors. 

I would be interested in anyone else's experience of getting paid and what the industry norm is for sub-contract work.

In particular is there anyone out there lucky enough to get paid within 7 days from the date of application or is that just fantasy land? 

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Depends...

...on the contractor and the contract. These days rates have gone down & terms have got worse. There are guidelines for the main contractor to follow where the customer is either local or national govenment, or a 'major project'. As to 7 days: about the only ones to get paid weekly are one-man-band-subbies doing short term work.

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Welcome to the Construction Industry

-- The Sage Construction Guy

The construction industry is rife with payment problems and the main contractors, particularly in these hard times, will 'protect' their cashflow at the expense of the subcontractor.  It's been like that since I started as a trainee contracts surveyor in the early 1970s.  The Latham Report several years ago tried to set down reasonable terms but these generally ignored.

The 'norm' is what appears in the contract and your customer should make sure they are aware of the payment terms before submitting quotes or taking on the work under whatever terms are in the contract.  The contract should state, or your customer should get in writing, that the application is certified within a set number of days after submission and payment is received a set number of days after that.  Terms that the 'employer' (the main contractor) will agree to will vary considerably and they have become longer during the recession.  I know of subcontractors who themselves impose terms on subcontractors like payment 30 days after the end of the month in which the application for payment is received, then set the valuation/application dates at the beginning of a month!

I'm afraid your customer is, like most subcontractors in this climate, stuck between a rock and a hard place.  Main contractors will impose the terms they want, and even then pay when they want, because they know there are plenty of other subcontractors desperate for work.  The best card your customer can play is to provide such an exceptional service that the main contractor really wants to employ them and will agree to better terms.

Again, check the contract and agree payment terms before accepting a contract and then assume the payment will be late.

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Mostly fantasy land

"In particular is there anyone out there lucky enough to get paid within 7 days from the date of application or is that just fantasy land?"

Mostly fantasy land, as regards Main Contractors.

However, my subbies get paid out as soon as I see their invoice.  Nuts?  Not really; holding up payment in case something goes wrong and you have 'leverage' is not going to get a good result, not in the longer term.  Interest rates are silly, so there is no sensible advantage in keeping the sum in ones bank account.

Instead, I try to foster a relationship with subbies so that when my name shows up on their mobile phone, they spill their coffee, trying to answer it fast, in case they miss the call.   I want them willing to put off their other customers so they can squeeze in my work first; I want them dead keen to do business with me, so I can do prompt business for my customers.

So, I pay when I see the invoice.   I even had one new chap call me up for no reason at all a month ago, just to thank me for the fast payment.   Doesn't always work (some subbies are just dumbos, of course). 
 

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