Is Cash Flow Crippling the MEP Sector?

Cash flow in MEP

While certainly not a new phenomenon cash flow continues to be a challenge for MEP specialists in this region with delays in payment common.

Cash flow is the lifeblood of our industry and one of the biggest challenges we face on a recurring basis. Whether consulting or contracting the issue affects all in the supply chain and is increasingly problematic the further you are from the source of the money. Stifled cash flow and increasingly onerous contract conditions have sadly led to the demise of a number of firms who have either folded or pulled out of the region. Other large and well established Contractors have noticeably reduced their visibility as they take stock and go through restructuring processes.

So what is the solution? The key is to pick your clients very carefully. Do your research on their payment profile, check their track record in delivering projects and ask for proof of funding. Fight for fair payment terms, understand the client’s reasons for the addition of the onerous clauses and help them to understand why they aren’t required. Good contract negotiations end in a win-win situations where both parties feel they are getting value for money.

As a consultant we often find that we hand over the drawings and then there is a lengthy wait before we get paid, quite often well in excess of the agreed contractual period. That’s really not acceptable or helpful and generally a result of milestone payment terms. Interim monthly payment against a mutually agreed draw down is a fairer method of payment and several of our clients have implemented some form of this. This is the sort of pro-active approach by our clients that will help alleviate the cash flow problem in the market.

The right to suspend or cease work on a project due to breach of contract for non-payment is a decision not to be taken lightly. Whilst this may be inevitable in some situations there are many factors to consider including not only your relationship with the client but how you are perceived by potential new clients in the general construction community. The same applies to court action where the outcome will rarely satisfy either party. Some form of arbitration should be agreed upon at contract stage to provide an alternate route for resolution before this stage.

We all understand that late payments are sometimes unavoidable and most firms are able to shoulder the occasional lag. Where late payments become the norm rather than an occasional oversight however we cannot continue to operate in this kind of environment indefinitely.

By Nathan Cartwright, Partner / Commercial and Operations Director