I have attended many management meetings in my time. "Cash flow" is always high up the agenda. At this point in the proceedings, most of the assembled company can relax and have a snooze, whilst one unfortunate individual goes through a "Gestapo" type interrogation. This will normally be the QS or Accountant. It would seem from the exchanges that this person's incompetence and lack of effort are the key factors giving rise to the company's chronic lack of funds. Unfortunately, such a view, whilst commonly held, is a gross over-simplification of the real position. In reality, "cash flow" is the responsibility of every individual in the organisation, and starts from "day one".
If work is acquired on a "pay when paid" basis, with
provision for the Builder to set off contra charges whenever he feels like it,
if orders are placed with suppliers and specialist sub-contractors at
unfavourable terms, if labour resources are assigned and expended without
regard to the tendered allowances, if variations are accepted and implemented
without any real attempt to incorporate them in the current Interim
Application, if delays and disruptions go un-recorded and un-notified, if
"special measures" such as weekend working and imported labour are
undertaken without any prior agreement, if essential site records such as site
diaries and time allocations are neglected, if office records and systems such
as wages and invoices are not readily accessible and user-friendly, then there will be "bad cash
flow".
In other words, all the various functions need to be geared from
the outset towards "good cash flow".
This starts with the tendering process, where every attempt should be
made to qualify and/or reject onerous terms.
In my experience, a Builder will often be willing to negotiate, providing
the Subbie's tender price is sufficiently attractive. The Sub-contract Agreement or Order should be carefully vetted to
ensure that it faithfully represents what has been agreed. Arrangements with Suppliers and Specialists
should be "back to back" wherever possible, so as to avoid subsequent
"piggy in the middle" situations.
The programming and resourcing of the job should be done with one eye on
the tender allowances. Labour costs
should not just be allowed to happen, which is surprisingly often the
case. Site staff should be encouraged
to notify the Builder immediately there is any kind of delay or disruption, and
to keep detailed records7. Similarly
with variations. The Builder should be
kept fully informed at al times regarding anything which may affect completion
or costs. Variations and claims should
be kept fully up to date.
Utopia? Maybe. However, it is clear from the above that
good cash flow should be the job of everyone in the firm. Only if we face up to this basic fact can we
stand a chance of survival.
Keynote: Don't leave good cash flow down to one person.
John Russell
Construction Contracts & Training Consultant (Established 1984)
Cheshire CW4 7DP Tel
: 07770 986444
Email : swsubbie@globalnet.co.uk Website: www.jrconsultant.co.uk