Two timetables, one cash position

The main contract has a valuation date, a due date and a final date for payment. Each subcontract has its own. Nothing in either document requires them to align, and on most jobs they do not.

The result is a gap: work is valued in the subcontract cycle and paid out before the corresponding money arrives from above, or vice versa. Someone funds the difference for the duration of the job.

How the gap arises

Four mechanisms, usually in combination:

Different valuation dates. A subcontract valued on the 5th against a main contract valued on the 20th means fifteen days of work is valued downstream before it can be claimed upstream.

Different payment periods. A main contract with a 14 day final date and a subcontract with a 21 day final date works in the contractor's favour. Reversed, it does not.

Application deadlines that do not line up. If the subcontractor applies after the main contract valuation has been submitted, its work cannot be included until the following cycle, and it will be paid for it before the money is claimed.

Different retention. Retention held downstream at a lower percentage than retention suffered upstream is a permanent working capital cost, not a timing one.

Why conditional clauses do not fix it

The obvious answer, making subcontract payment conditional on receipt from the employer, does not work. Section 113 of the Construction Act makes pay-when-paid provisions ineffective except on the third party's insolvency, and pay-when-certified provisions are addressed in the same way.

A main contractor relying on a conditional clause has an unenforceable clause and a cash position it has not planned for, which is worse than knowing the position and funding it.

What can be done at procurement

This is where the problem is solvable, and it is the point at which nobody is looking at it.

• Align valuation dates. Set subcontract valuation dates a few days before the main contract date, so downstream work is captured in the upstream application it belongs to
• Set the application deadline to serve the main contract cycle. Require applications by a date that gives you time to include them
• Make payment periods no shorter downstream than upstream, within what the Act and fair dealing permit
• Match retention, or price the difference into the package rather than absorbing it
• Check the subcontract complies with the Act, because a defective mechanism means the Scheme applies with a 17 day final date you did not plan for

Measuring it on a live job

For each package, four dates and two figures:

• Subcontract valuation date and final date for payment
• Main contract valuation date and final date for payment
• Value being certified downstream this cycle
• Value of the same work being claimed upstream

The difference in days multiplied by the value gives the funding requirement. Aggregated across packages it produces a number that a small contractor should know and usually does not.

The part that hurts on a bad month

The gap is manageable when payments upstream arrive on time. It stops being manageable the month one does not.

A single late payment from the employer arrives while the downstream obligations continue exactly as before, because they are not conditional on it and cannot be made so. That is the moment the structural gap becomes a liquidity event.

Which is the argument for knowing the number in advance. A contractor that knows it is carrying £60,000 of timing difference across its packages can arrange for it. One that discovers it during a late payment is arranging for it under pressure, at a worse price, with less time.