Masonry Magazine August 1970 Page. 20
Recommend Reforms in Construction Payment Practices
Recommendations for fundamental reforms in construction industry payment practices have been made to the non-profit Construction Industry Foundation by loan officers of large commercial banks involved in construction financing in all sections of the United States.
The suggested changes resulted from a survey conducted by Dow Ostlund, senior vice president of the Valley National Bank, Phoenix, and chairman of the CIF's Committee on Financial Order. They have been published in a pamphlet, "The Flow of Funds Through the Construction Process."
Robert G. Cerny, foundation president, said, "Although everybody in the industry talks about financial malpractices, they have never before been thoroughly documented. The study provides a basis for major improvements in the archaic and slipshod ways that money changes hands."
Cerny emphasized that the recommendations have not been endorsed by the foundation. The foundation's own recommendations will not be made until all phases of the study have been completed and the membership has acted upon them, he said.
The bankers' comments are categorized into three groups of problems slow payments from the owner, slow payments by the prime contractor, and retentions.
Some funds held back deliberately
Some owners, the report notes, "work the funds" that is, deliberately hold back payments so that they can use the money for some other purpose. Slow processing of change orders and the "wheels-within-wheels" delays of government bodies are said to impede the flow of funds.
Among the suggestions made to speed up payments from owners were:
1. Place funds in the hands of a "third party"-probably a bank or other financial institution to be disbursed routinely to the general contractor and subcontractors "in timely fashion as the project progresses."
2. Provide that owners post payment bonds with contractors, just as contractors now post bonds with owners.
3. Payment of interest by owners on debts to contractors after a reasonable time limit.
4. A method under which the owner would make one total payment after his building has been completed. Prime contractors and subcontractors would arrange interim financing to keep themselves fiscally solvent during the course of the work. The cost of their borrowing would be included in the initial contract price.
Juggling of money slows payments
The most common cause of slow payments by prime contractors was said to be "juggling of funds from one project to another." Often, the bankers said, payments from the newer job go to settle the bills of older work.
The bankers suggested:
1. Allowing an impartial agent to handle all disbursements from prime contractors to subs.
2. The owner make direct payments to subcontractors as well as to the primes.
3. The general conditions of contract provide for penalties against prime contractors if payment against legitimate requisitions by subs is not made within a specified time.
The bankers reported wide variance in retention percentages. The average was reported to be 5 per cent, regardless of bonding requirements. Even government agencies, which require bonds, retain as much as 15 per cent.
Suggestions included:
1. Require the owner to invest the retained percentage, with interest accruing to the contractor's account.
2. If there is a qualified bond on a job, there is no justification for retention.
3. A reduction in retained percentage as work nears completion.
4. If an owner takes beneficial occupancy or operating responsibility before a job is completed, guarantees should commence and retainage should be reduced.
Cerny said that further research and solicitation of reform recommendations will be made among contractors, architects, suppliers, and other segments of the industry.
Dietrich Wins Glass Block Trophy
Robert Rawlins, left, Pittsburgh Corning Corp. presents to Les Dietrich, St. Louis, Mo., the Glass Block Trophy, as winner of the Annual MCAA Golf Tournament held at the Summer Executive Board Meeting.
Conveyor Cuts Production Setbacks
Climbing a 32 slope after completing a 90° turn within a 7 ft. radius, a Serpentix conveyor system hauls wet clay around a dry pan grinder to prevent a work slowdown or stoppage. After drying, the raw clay returns to the grinder to resume normal processing at Robinson Brick & Tile Co. in Denver. Although more than 500 major installations of the Serpentix conveyor have been completed during the past 13 years in Europe and Asia, the Denver installation is the first to be placed into operation on the American continent. Robert L. Alldredge, a Rocky Mountain engineer and businessman, acquired the exclusive U.S. sales rights from Stubbe Company of West Germany, which developed the system.