Extending payment terms is not without consequence and we must be informed on these risks in order to make a sound decision.
Throughout the world legislative actions are transforming the way the construction industry behaves. These legislations are not only protecting trade contractors from unfair practices, they are protecting Owners too.
Surprisingly, some of the world’s most sophisticated markets have yet to enact similar protections. In those parts of the world, certain common and persistent practices continue to put the supply chain and Owners at risk.
This had the net effect of holding back the Contractor’s entire fee as a guarantee that they would complete the work.
One of the strategies for maximizing the value of capital is to extend payment terms.
This process occurs before the contractor presents an invoice.
In other words, they made payments to the contractor without knowing what these payments were for.
Since the fall of Carillion, the construction industry has been actively seeking a change.
Using PBA’s will require significant adjustments and all parties will need to rethink how they operate.
You should bear that in mind and recognize that your payment is always a form of reimbursement.