Connection Magazines recently published an article about The $7 billion Problem in the construction industry and ways to solve it. It featured in their Plumbing, Electrical and Building editions and of course if featured us [proud face].
The Australian economy is being drained of $7 billion annually, and it’s due to a number of factors weighing heavily on construction projects throughout the nation.
Payment disputes, contract disputes, lack of transparency and mistrust are to blame, according to a CRCCI report detailing the effects of these causes on the industry. For example, you’ll have likely heard of the payment claim demands plaguing the Perth Children’s Hospital, with John Holland facing claims of $8.6 million from subcontractor Yuanda Australia, as well as similar claims from two other contractors. The dispute is one of the reasons the project is now experiencing delays, and the construction company is experiencing backlash from their client, the West Australian Government.
Disputes like this are rife in the construction industry and stretch from the minuscule to the major. They can arise from simple misunderstandings among colleagues, which can often by resolved internally, to the more serious payment claims for work completed or not completed. Outdated manual processes are the root of the majority of these issues. Relying on invoices, emails and spreadsheet reconciliation make claims incredibly difficult to track and means mistakes can and are easily made, leading to needless legal rows and hold ups on site.
As a former CFO of a residential commercial and retail builder, I’ve seen how damaging the fallout from disputes can be for all involved, particularly disputes over payment. Despite their varying levels of severity, all disputes are a waste of time and money, particularly when there are modern ways to reduce or avoid them altogether.
We call the payment dispute issue “The $7 billion Problem”, and it’s not just me who has noticed it. The CRCCI report points to the fact that “disputes also contribute to the inflation of future project costs through higher tendered prices based on previous experience in similar work”, often unnecessarily raising prices for clients.
Master Builders Association of NSW executive director Brian Seidler has said that as construction projects grow over the next few years, “how contracting parties deal with various payment processes needs to be resolved”.
Similarly, an article in the Sydney Morning Herald indicated that “law and accounting firms look to be the big winners of wrangles between producers, contractors and sub-contractors”, with some disputes reaching claims of over $1 billion.
The good news is that there are plenty of new ways to streamline processes within construction projects which can minimise the risk of disputes and optimise project outcomes. More importantly, these solutions involve everyone on the build: financiers, developers, consultants, prime contractors, subcontractors and all other parties to the supply chain.
To revamp the backend of the construction industry and minimise the risk of disputes, old methods of communication need to be revitalised to be more inclusive from the beginning of a project, incorporating collaboration buy-in and trust. The adoption of new technologies will help streamline processes and avoid disputes and help eliminate the economy’s $7 billion problem.
The article was originally written in Connection Magazines – Plumbing Connection, Electrical Connection and Building Connection. You can subscribe to receive these magazines at: www.connectionmagazines.com.au
Contract Administrator, BUILT