Fears of contractors skipping payment for materials
With all the money splashing around due to increased expenditure on public works and private development projects, it seems some things never change, that is getting paid on time and in full.
While getting paid late is commonplace and probably expected as part of life in business, according to a report by Chinese newspaper Sing Tao Daily last week, things are getting worse.
One supplier of scaffolding materials told Sing Tao that he is handling seven to eight cases at the moment.
“This year, there has been more late payment. It’s especially severe,” the supplier was quoted as saying.
He said while last year, the highest amount of late payment was HK$100,000, this year it was HK$200,000.
The customer concerned has been delaying payment since June.
What was difficult for the supplier was that he had to pay cash up for the materials which were supplied from the mainland.
Although prices have gone up 10 percent over the year, the supplier decided not to pass on the increase to his customers.
A timber and plywood supplier said he had to write off one debt of HK$500,000.
“When we went [to the client’s office] to chase payment, the subcontractor had cut his telephone number. The whole company had disappeared. There was basically no way of chasing payment,” the supplier was quoted as saying.
One man’s poison is another man’s meat, to paraphrase that well-known idiom.
According to Sing Tao, debt collection agencies are seeing an increase in requests from companies hoping to chase late-payers.
A director at such an agency, Regal Management Consultancy, said the number of cases for construction related debt has doubled over the last year.
One case involved chasing a main contractor for over HK$3 million.
He said during large disrupting events such as SARS and the 2008 financial crisis, debt collectors get a lot of construction related cases.
“For this year, construction related debt has been especially severe. It could lead to a new wave of closures of contractors,” the director, surnamed Lui, was quoted as saying.
A managing director at one contractor, YSK2 Engineering, said to Sing Tao that many contractors were grappling with rising costs on contract prices that were fixed several years ago.
Some materials suppliers appear to be having greater success in getting paid.
Steel trader Van Shung Chong Holdings (1001) reported last week in its interim results that there was “a sizeable decrease in account receivable levels in the current period” due to improved credit controls.
According to the Quarterly Construction Cost Update for September 2013 by cost consultant firm Rider Levett Bucknall (RLB), material costs such as high tensile steel bars and Portland cement have remained relatively stable over 2012 and into 2013.
Labour costs however seem to be going through the roof.
RLB said average daily wages for steel bender and fixer in June 2013 was HK$1,526.50 compared with HK$1,295.50 a year earlier.
For concretor, the average daily wage in June was HK$1,401 compared with HK$1,118.60 in June 2012.
The difference is even more striking when you consider that the wage is January 2012 was HK$1,073.80.
Last week saw a strike by disgruntled workers over non-payment of wages by a subcontractor at a property development site at LOHAS Phase Three in Tseung Kwan O.
The subcontractor Wellfield Engineering had gone bust owing backwages totalling HK$9 million.
A company boss at a listed contractor said his firm has not been experiencing problems in paying its bills.
This was because most of its work was government related and did not face problems of payment from the employer.
In addition, government contracts had provision for contract price adjustment to cover increases in cost and materials so his company was able to recover some increases in cost.
“We try our best to avoid private clients as most of those contract conditions are much tougher than [for] government. And also a lot of time, they delay payment,” the company boss.
He said most of the time, the problem of payment stemmed from the project owner.
“No doubt, you will observed that for a lot of cases where the subcontractors are not getting paid, there is common element: the client is one of the famous developers in Hong Kong, who is well known in the industry for not treating their contractor fairly,” the director said.