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Clarity, communication key to avoiding cash-flow conundrum

Camfil MD discusses key contractual issues that must be addressed, the importance of being selective with projects and the need for transparency

| | Sep 23, 2019 | 11:12 am
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By Ranjana Konatt | Features Writer & Hannah Jo Uy | Assistant Editor

Nigel Hawley

DUBAI, UAE, 23 September 2019: Clarity and clear communication would go a long way in dealing with cash-flow issues, said Nigel Hawley, Managing Director, Camfil Middle East FZCO, as he discussed how scheduling and forecasting can mitigate challenges related to project delivery. “Everything needs to be discussed upfront, documented and ideally put into the formal contract,” he said. “Relying on anything outside of the contract, no matter how friendly the discussions are at the outset, is to be avoided, because it is only what is in the contract that can be enforced.” As such, Hawley said that parties must seek to enforce their right to be paid and that to this end, a cost-effective arbitration service would be especially helpful.

Hawley warned that stakeholders must be wary of red flags within the contracts. Providing examples, he said: “Any terms that suggest payment is linked to events outside of our direct control – that is, ‘pay when paid’ – should always be avoided. And liquidated damages above the contract value.” He also said that there is no excuse for any party to have an out-of-date contract, considering no contract can be amended unilaterally, once signed. “If something is changed, both parties must agree and re-sign, so they should always have the latest version,” he said. “Anything less than this is just bad management.”

Hawley pointed out that it is vital for companies to discuss such matters in order to protect their cash-flow, which, for manufacturers, can be particularly challenging. “We are under pressure, because we both manufacture locally, which requires the advance purchase of materials, and we also bring in finished goods from sister companies,” he said. “Relatively long lead times mean we often suffer from negative cash flow payment for goods and materials, many months before we are ultimately paid by our customer.” Hawley said that this has been a cause of stress for projects, especially since, as manufacturers, they must continue to honour commitments previously made, but have not always been paid for. “There is a ripple effect,” he said. “If we are not paid then we cannot pay our suppliers, who then won’t supply for the next project. This leads to further delays, late delivery and, then, late payment. And so the circle continues.”

Hawley said that, as a result, suppliers are becoming more and more selective when it comes to the projects they are willing to participate in. “If there is above average risk, it is best to decline than participate and not get paid,” he said, adding that suppliers at the bottom of the supply chain are those that are most exposed and affected. “These are the very companies who are least prepared to weather such challenges, and this often results in them going out of business,” he said.

As such, Hawley said that greater transparency on how the money will flow down the chain from the master developer would be especially helpful in safeguarding the interests of the construction community. Hawley said that large contractors should be forced to disclose payment history when bidding for a contract. “This would allow contractors, who honour payments to their suppliers, to be selected for the work and give sub-contractors more confidence in the fact that they will eventually get paid.” Additionally, Hawley said, being able to have recourse against the master developer or project owner would give the sub-contractor more confidence they will ultimately get paid. “This recourse should include assistance to help ensure the sub-contractor distributes money down the chain when they get paid,” he said.

Hawley said that while self-regulation is the best course of action, public sector support in publishing such types of information would go a long way in protecting the financial interest of business owners as well as in ensuring the quality of equipment being installed. “The government has a role to play in ensuring appropriate standards are set, included and followed, when projects are designed and contracts are drawn-up. This would avoid a flight to “cheap inferior products” that do not meet the required standards.”


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