In the UK construction industry, payment is usually made at intervals during a project, often by way of a monthly application by the party seeking payment. The legislation in the sector, referred to colloquially as the Construction Act, requires that the construction contract includes an “adequate mechanism” for payment and dictates the use of certain notices certifying payment to be issued by the paying party. Whilst this process is intended to ensure regular payment in the sector it can also be costly, time consuming and an administrative burden because it is traditionally a paper based system, with applications received by email or post. Many payment disputes arise because of human error such as failure to issue a notice in time or in the correct format.
Payment disputes are the single biggest threat to construction firms in the UK (survey by BACS Payment Services in 2016). There are around 280,000 construction business in the UK and they employ an estimated 2.9 million people. Over 75% of UK businesses find themselves in a position of waiting more than the agreed time before being paid. Disputes about payment can destroy commercial relationships and may result in project failure.
There are a couple of technologies starting to be used in the UK construction industry which use cloud-based software, for the processing of applications for payment and payment notices between main contractor and subcontractor and/or suppliers. Such technology has already had success in Australia. These are in the form of collaborative platforms that allow contractors, subcontractors and consultants to prepare, submit, assess, review and certify applications for payment. The contractor can use this to manage payment for all of its supply chain. It can also be tailored to suit particular projects and specific requirements. It is clear this technology could result in cost savings, drive collaboration, support sustainability. ensure greater transparency and reduce the amount of management time required.
So in short, yes, technology should be able to help avoid payment disputes by driving efficiency and reducing the possibility of human error. We anticipate that the use of such technology is only set to increase.