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Prompt payment: Tales from the trenches

0 612 Government

by Don Wall & Russell Hixson

The red chamber of Canada’s Senate on Parliament Hill in Ottawa, decorated in plush red and gold with its ornate thrones, is a far cry from Sue Moore’s grey, utilitarian, second-floor corner office at the Mississauga, Ont. home base of Moore Brothers Transport.
Paul Seibel, president of ACL Steel of Kitchener, Ont., said his firm is conservative in managing its finances but still falls victim to bottlenecked contract payments. Regarding proposed legislation, he said, “If we get prompt payment the way it was written, if I am not paid I have the right to stop work without recourse against me. It really is in everybody’s advantage to make sure payments are flowing.” Pictured, an ACL crew on the job.
Paul Seibel, president of ACL Steel of Kitchener, Ont., said his firm is conservative in managing its finances but still falls victim to bottlenecked contract payments. Regarding proposed legislation, he said, “If we get prompt payment the way it was written, if I am not paid I have the right to stop work without recourse against me. It really is in everybody’s advantage to make sure payments are flowing.” Pictured, an ACL crew on the job. - Photo: ACL STEEL

But this spring, Moore, owner and general manager of Moore Brothers, and the senators are united in their concern with one issue of vital importance to the construction sector — prompt payment.

Any day now the Senate is expected to debate and give third reading to Bill S-224, a private member's bill that would overhaul payment scheduling and lien provisions on federal contracts. The reforms would then be sent to the House of Commons. Meanwhile, the Ontario government has also indicated it will introduce reforms to the Construction Lien Act this spring for provincially regulated contracts.

As active members of the Canadian Institute of Steel Construction (CISC), Moore, Tim Houtsma, vice-president of projects and engineering at Marid Industries Ltd. in Halifax, and Paul Seibel, president of ACL Steel of Kitchener, Ont. said in recent interviews they are keenly following the legislative reform efforts.

Seibel of ACL Steel is employing 55 workers right now, a high water mark in recent years. They do design builds, custom work, welding and fabrication. He said even though his firm has a solid line of credit that ensures they steer clear of failure, he too is required to do his share of pleading with suppliers to be patient to be paid. His terms of payment are 30 days but for various reasons the days pass and if it gets close to 45 days, he and his comptroller start to get nervous. Nearing that point, they have to decide whether to put a lien on their work or risk losing rights.

"It gets tight," Seibel said. "The comptroller is pacing, I am pacing, you can feel it in the company, there is a strain there. People ask, when are we getting paid? There is a vibe, you feel it."

Hold-ups can start very early on in a project. ACL usually contracts with general contractors and occasionally with owners. Sometimes, Seibel said, the owner embarks on a build but it's soon apparent the financing is not there. It's nasty news to receive over the phone from the general contractor (GC), Seibel said.

That was one of a dozen situations he described of cash flow breakdown his firm has to endure.

Houtsma said he is also feeling the pressure of late payment. Marid is one of the three largest steel fabrication firms in the Halifax area.

"The biggest impact it has on us is cash flow," he said. "It feels like a seasonal part of the construction year for us when we hit September or October after a busy August. I'm not getting paid by the GC for 60, 70, 90 days and things get really tight and lean here...if we were any smaller or didn't have good relationships with suppliers we would be shut down."

He said that cash flow challenges are "blood in the water" for a company. Rumours of trouble paying bills can scare off suppliers, creating a toxic snowball effect.

"It's the small to medium enterprises, the ones that everyone is saying that need to be supported, that are most prone that that kind of risk," he said.

But he doesn't believe getting legislation will be easy, as the top GCs are well connected, well-funded and politically savvy.

"I think that a minority control the agenda to the peril of a lot more people who are smaller and maybe less organized and have less political clout," he said.

Often during the fall Houtsma finds himself having to take a pay cut to deal with late payment and also has to pass the financial pressure further down the food chain.

"All I need is for one supplier to say, 'I don't believe you can pay us,' and cut me off and they could put me out of business," he said.

Moore's fleet has 40 trucks and 120 flatbed trailers and hauls steel to manufacturers at many stages of the production process — angling, welding, painting or galvanizing — for end use at builds. Every year Moore tries to manage accounts receivable (AR) to keep as many good workers on during the lean winter months as possible, she said, but it is increasingly difficult. This winter she had to lay off seven workers out of a workforce of about 50.

In the early days of Moore Trucking, payment was demanded in seven days. Today her invoices say 30 days but her AR is planned for 60 days.

"Cash flow is tight, obviously," said Moore. "You do not see any loosening in the cash flow for the whole year any more. So you have to be a good planner, you have to try really hard to stick to your budget, you have to work with your bank and have a good line (of credit) in place. Your bank requires you to have insurance on your receivables which is a big cost."

The cash flow uncertainties add to her costs in several ways in addition to the premiums paid to secure the $5 million in insurance. For example, a couple of years ago Moore had to hire a comptroller for the first time. That's an additional salary for her tightly run ship.

With cash flow so tight, one hiccup can put a strain on the whole operation, Moore said. And there usually comes a time when it is a question of deciding what bills to pay first, and then cajoling suppliers into waiting, she said.

Staff always get paid, no matter what.

"Then you go down to maintenance, purchases that you make, and maintenance suppliers, they get hung out to dry at this time of year," she said.

Seibel, Moore and Houtsma all say they look forward to reform that will help with prompt payment. A CISC spokesperson said on March 31 that third reading of Bill S-224 in the Senate was imminent.

A western Canadian perspective on this issue is featured here.

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