Payment delays situation normal

Although there is an abundance of work out there contractors are having a tough year. Escalating raw material prices have forced contractors to delay payments to other suppliers. How does the plant hire business cope.

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By  Colin Foreman Published  October 23, 2004

Payment delays situation normal|~|44 Products body.jpg|~||~|Contractors in Dubai are undoubtedly under extreme pressure. The volume of work underway is at unprecedented levels and to make matters worse every project seems to be fast-tracked with seemingly unrealistic deadlines. Residential developments are also pre-sold which gives little to no leeway when it comes to deadlines. Time is not the only problem. So is finance. Many contractors are struggling to balance their books after experiencing an “annus horribilis” for material prices. Cement famously went through the roof during May and many sites were unable to secure deliveries and therefore missed pours and lost time. Cement was not unique. Earlier in the year steel prices surged globally and the UAE, a haven of relatively low prices, was forced to raise prices to match the rest of the world. Other more specialist items like copper, and even timber, have increased in price greatly over the last 18 months. With all this pressure something has to give. It must not be forgotten that contractors are, at the end of the day, businesses. And if a business loses money in one place, it will seek to recoup it in another. This is bad news for companies further down the supply chain as contractors’ accountants create priority lists in order to rationalise their spending and delay payment on non-essential items in an attempt to improve their balance sheets. Although plant hirers will tell you that they provide an essential product, many contractors simply regard it as a non-essential service instead. Hired plant is perceived to be the supply of equipment so it is a service rather than a prime material like steel or cement, which are essential. The fixings and the fittings are not viewed with the same importance, but all the concrete and steel in the world isn’t worth a thing unless it’s put up properly. For example, if finishing and vibration equipment is not essential then the implication is that is a contractor can get by without it. This presents an interesting scenario because if such equipment is forgone then concrete pour are more than likely to go bad and ultimately cost contractors hundreds of thousands of dirhams to rectify. Hired equipment suffers more than bought equipment because the contractor has no ownership rights over hired equipment. Because of this perception many contractors now hold off on plant hire charges for as long as possible. Contractors can normally customise the payment structure but most hire contracts require payment within either 30 or 60 days. However, according to one hirer: “It is a know fact in the industry that if you are paid in 90 days you are damned lucky, and it stretches to at least 120 days for most companies. In effect you are not in business any more, you become a bank, and not a very well one at that, because you can’t charge interest.” The problems for hirers occurs after60 days when payments begin to be chased. Although the hire contract may state that the bill is due after 60 days contractors often claim the bill is not due until 90 or 120 days. It becomes a take it or leave it situation for the hirer, which leaves little in the way of options, and forces the hirer to capitulate and accept the new terms. Although payment is late, it is nevertheless normally made and most hire companies report that it is rare for no payment to be made at all. When it does happen it is normally the small one-man operations that are unable to pay, and most simply regard this as the cost of doing business. The main conflicts from a non-payment point of view tend to arise when contractors don’t understand the hire contract itself. One example of this is when a contractor that does not work on Fridays refuses to pay the hire charge for that. This can easily be overcome by off-hiring on the Thursday and re-hiring on the Saturday so the dispute is basically unnecessary and the hirer ends up chasing money that the contractor has no intention of buying. theft Another problem that is experienced in the other markets but is seldom a problem in this market is theft. In the UK for example, the number of thefts each year has increased by 40% since 2000. In 2003 some 3 5000 separate incidents of theft were reported costing the industry some GBP35 million. It is likely that the problem of late payment will persist for as long as Dubai continues to grow at such a rapid pace, and contractors scramble for the resultant contracts. The irony is that when growth does eventually cool off, if it ever does, hirers will be faced with greater problem of not being able to hire out their equipment in the first place. ||**||

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