June 18, 2010

Canadian Construction Association seeks shorter payment period for government contracts

RICHARD GILBERT

staff writer

REGINA

The Canadian Construction Association (CCA) is addressing the issue of shortening the period it takes the federal Treasury Board to pay contractors on federal government contracts.

Construction work performed by a contractor for the federal government is paid for in the standard 30-day payment period. But the CCA is currently lobbying the federal government to reduce this payment period members said at a recent association board meeting in Regina.

“The federal government should take the lead in industry practice, by reducing the payment period, because in standard documents, like CCDC 2, the payment period is 20 days,” said Eric Lee, senior director of industry practices with the CCA.

“We will try to lobby the federal government so they can follow the standard practice in the private sector. The federal government should present themselves as a preferred client and pay on time.”

Lee said that government departments, such as Defence Construction and Public Works Canada have the capacity to make payment in less than 30 days, because they have done this in the past. However, they are currently required to follow the government’s 30-day policy.

In private construction, if the prime contractor gets paid in 30 days, this means the sub-contractor could get paid in 45 days and suppliers in 60 days.

This is a serious problem for contractors, who have to pay all their suppliers and manufacturers in 30 days. This creates a cash-flow squeeze for contractors who pay suppliers before they receive payment from the government.

“This means the government is asking the contractor to finance the project,” said Lee. “The contractor is responsible for building the project, not the finance. The owner is responsible for all financing costs.”

In some circumstances owners might believe they can gain an advantage by downloading finance costs to the contractor.

This could add to costs because the government has access to lower rates and financing costs.

Contractors may also increase contract prices if they believe there is a risk they will end up financing the project. In both of these cases, the owner will end up paying more.

“We definitely have to push for this,” said CCA executive committee member John Bockstael. “What the government does becomes the standard for business, which means everybody will go to 30 days.”

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