All work and no pay makes contracting a difficult business

$46 billion caught up in delayed payments that take an average of 66 days

Kevin Aujla, CEO and founder of BC Builder: “what our company is looking to do is bring the standard of professionalism and ethics up. We’re really trying to keep both sides happy, and everything is done on paper and by procedure” | Chung Chow

Imagine heading to your job each morning and being uncertain about whether you’ll get paid for the day’s work. For many in the construction industry, it is a daily reality.

According to a 2018 Singleton Reynolds report, roughly $46 billion has been withheld from contractors working within the province, or approximately 17.4% of the provincial economy. A culture of slow payment by builders within the construction industry is tightening the financial screws on many subcontractors, their employees and their business.

Electrical contractor Ricky Mann, co-founder and principal of Highline Electric Ltd., has experienced the problems associated with slow payment first-hand. He said it has created trust issues within the industry, leaving him with no option but to do business with a limited number of builders whom he trusts to pay on time.

The principal of Northwest Sheet Metal Ltd., Bernie Antchak, has also struggled with late payment and even non-payment within the construction industry. He said he has known contractors that have gone out of business because of late payments.

“Nobody pays within 30 days; it’s unheard of,” Antchak said. “The average in our industry is probably 66 days. Some people just do things contrary to the contract, and they don’t care because they’re so big and there’s just nothing you can do. They just outweigh you with their financial strengths.”

While Antchak faces payment delays on every job, non-payment is significantly less frequent. He said builders fail to pay in roughly one out of every 100 jobs. Mann, on the other hand, estimates that 10% to 20% of his company’s jobs have payment problems outside of regular industry delays.

Rather than using incoming cash flows to expand and invest in their business, subcontractors are forced to finance the builder’s costs because of late payments. It’s essentially a zero-interest loan to the builder. There are even rumours that builders are putting large sums of cash that have been withheld from subcontractors into short-term guaranteed investment certificates to make a quick buck.

“Trade contractors carry the cost of construction by not getting paid, period,” said Dana Taylor, co-ordinator of Prompt Payment BC and executive vice-president of the Mechanical Contractors Association of BC. Taylor has been pushing for prompt-payment legislation for more than a decade.

Not only are subcontractors the unwilling financiers of construction projects in the province, they are also facing pressure from their creditors and suppliers who want to be paid on a timely basis for the materials and services they provided to the jobs subcontracted by the builder.

Aside from individual subcontractors, the real estate market and economy at large are affected. Ultimately, Taylor said, subcontractors mitigate the impact of payment delays and the possibility of default by raising their prices. Slow payments also cause a backlog within the system of training and apprenticeships that could be contributing to the overall skilled-labour shortage in the Lower Mainland, he said.

Delayed payments to contractors can also affect the payment of employee compensation and benefits, Taylor said. While contractors can usually manage to pay wages on time, they are forced to lower or abandon payments to pension plans and other benefits.

Payment issues have long dogged contractors across North America. Most U.S. states have enacted legislation to ensure the prompt payment of subcontractors. Canada has been slow to follow suit because the dominant industry players are resistant to change and often are insulated from the risk that they push down the chain to smaller contractors and businesses. Ontario has only recently passed similar legislation, and Manitoba is in the process of doing the same. Federal prompt-payment legislation was also recently passed in the Senate, but because of labour jurisdictions, it applies only to federal projects.

In British Columbia, various industry groups including Prompt Payment BC have approached both the former BC Liberal government and the current BC NDP government, pushing for similar laws.

Taylor suggested there are two possible reasons why legislation has yet to be adopted. First, while the construction sector is essential to the provincial economy, the number of people directly affected by the industry and its regulation, like contractors and their employees, remains relatively small, with little political sway. The second possible reason is that developers donate more than contractors do to political campaigns. Between 2005 and 2016, the Aquilini Investment Group, which donated a total of $651,315 over the 12 years, contributed the largest political donation by a developer. The largest political donation made by subcontractors in the industry came from the Independent Contractors and Businesses Association. This group donated $362,570.

Taylor presented his concerns before the NDP caucus in November 2017 and was told that the spring legislative schedule was full, but that the government might be able to make room by the fall.

On July 17, 28 industry groups, labour associations and unions sent a letter to Attorney General David Eby asking the provincial government to take action on prompt-payment legislation. Eby acknowledged the problem but did not commit to a specific date to introduce the legislation.

“I have instructed ministry staff to monitor prompt-payment developments in Ontario and other jurisdictions, so that they will be ready to move forward when an opening in the legislative schedule arises,” he said.

The precarious state of the B.C. government is adding an additional layer of uncertainty. Taylor said he worries that prompt-payment legislation will fall to the sidelines again if there is a change in government.

Yet while government on the West Coast has been slow to take action, the private sector has been working to provide solutions.

Kevin Aujla, CEO and founder of BC Builder, created a co-operative building platform at bcbuilder.ca to try to foster greater trust between builders and contractors. The online platform  connects builders with various contractors. Aujla is flipping the traditional means of doing business in the construction industry on its head. Instead of seeking out contractors, builders put up a notice for the job they want done and contractors then bid on the project. If a builder doesn’t pay the contractor, its account is suspended and it is unable to take bids for new projects or other contractors until it pays its last contractor.

Aujla said the problem of slow payment likely started with builders taking advantage of contractors. But contractors, in response, began to take multiple jobs at the same a time in order to adjust for low levels of cash flow, creating delays, he said.

“What our company is looking to do is bring the standard of professionalism and ethics up,” Aujla said. “We’re really trying to keep both sides happy, and everything is done on paper and by procedure.”

By centralizing the bidding process on one platform, Aujla created a system where the ability of builders to seek contractors is dependent on their payment history. The site hasn’t had to shut down any accounts because of slow or no payment.

Mann and his electrical contracting business are using the bcbuilder.ca platform. He said it has allowed him to focus on delivering for his customers rather than fretting about collecting payments. Mann isn’t convinced that legislation is necessarily the answer, but he said if the problem gets worse, he would have no problem with the government stepping in.

Antchak, however, said there needs to be a legal mechanism that forces builders to pay contractors.