Balanced contracts help to keep cashflows running

13 Apr 2021

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The fourth event in FIDIC’s Covid-19 2021 webinar series took place on 13 April 2021 with an event looking at how the pandemic has affected cashflows and the finances of construction projects and how the industry has kept money flowing through the current crisis, writes FIDIC communications advisor Andy Walker.

The webinar, “Keeping cashflows flowing in challenging times”, was attended by 327 people and looked at how the Covid pandemic had delayed or suspended projects and the effect this has had on construction supply chain from the top to the bottom. The event also examined the role of FIDIC contracts in keeping cashflows flowing on projects.

“Keeping cashflows flowing in challenging times” was moderated by FIDIC chief executive Nelson Ogunshakin. The speakers included FIDIC board member and chief operating officer at Morrison Hershfield Group, Catherine Karakatsanis, Kabelo Motswagole, president of FIDIC Africa, Luis Villarroya, FIDIC board member, Rob Morson, partner at Pinsent Masons and Mel Zuydam, group chief finance officer at the UK Nuclear Decommissioning Authority. As ever, FIDIC president Bill Howard was also on hand to introduce the event.

Speaking first at the event, Catherine Karakatsanis, chief operating officer at Morrison Hershfield Group, said that Covid had impacted her business and the company has had to be resilient and agile to cope. With 20% of the workforce at Morrison Hershfield Group already working from home, the firm was well placed to handle remote working, she said. “We do a number of things in our firm to highlight the importance of cashflow. Cash is managed on a weekly basis and we use a dashboard to keep management updated on progress,” said Karakatsanis. She also highlighted the importance of project cash management and the importance of contracts and payment terms. “Payment terms need to be set to suit the project and you need to make sure that you don’t end up funding the project due to poor contract terms,” she said.

Mel Zuydam, group chief finance officer at the UK Nuclear Decommissioning Authority, made the point that the construction and infrastructure sector had managed to maintain its productivity during the current crisis due to flexible and agile working and skills built up over years. He praised FIDIC’s Golden Principles on contracts for stressing the importance of a commercial approach on contracts and also highlighted the measures that had been taken in his sector to support the supply chain in what was a mission-critical industry. “We have managed to maintain the efficacy of our supply chain by closely working with them during the pandemic and this has been essential as relationships have been built up over time and it would take us years to rebuild it,” he said. “Cash and payment should not be part of risk transfer on projects,” said Zuydam, who made the point that fairness and equanimity in contract working were crucial in fostering the right relationships in the industry. “Focusing on strategic relationships was crucial in maintaining cashflow,” he said.

FIDIC board member Luis Villarroya talked about some of the financial support programmes that have been introduced by European and American governments and said that he thought they needed to be better targeted and focused on “the now” and not the future. “Many of the industries worst affected, like tourism and small businesses, are not being properly supported and it is crucial that they receive targeted help now and not promises for the future,” he said. Villarroya also reflected on some projects that had been cancelled where the reason had been given of the pandemic when there was no real evidence for doing so. Some clients had abused the Covid situation to take decisions that should not have been made, he said.

Asked how Covid had affected cashflows on projects in developing countries, Kabelo Motswagole, president of FIDIC Africa and also managing director at Herbco Technical Services, said that he didn’t think the situation was that different in developing countries and certainly not in Africa. Some sites had been closed of course and this had affected firms’ bottom lines. Working from home had meant that a lot of effort had needed to be put into IT and communications and internet infrastructure, he said, and the industry had taken some getting used to this. “Most firms due to the pandemic have had to downsize and reduce staff as cash flows have declined,” said Motswagole. He also said that firms like his have had to be flexible and work on projects that maybe they wouldn’t have taken up in the past in order to keep finance flowing.

Rob Morson, partner at Pinsent Masons, also spoke warmly of FIDIC’s Golden Principles on contracts and highlighted the benefits of using them in the industry. “FIDIC makes payment entitlements concrete and this makes a big difference to construction firms,” he said. Standard form contracts like FIDIC help to protect cashflow, he said, as they offer a balanced approach with the proper allocation of risk and reward. “Contracts could be an enabler or an obstacle to good practice,” Morson said, who highlighted the need for balanced contractual relationships on every project. “Once again, the FIDIC Golden Principles offer excellent guidance for all parties on construction contracts,” he said.

The webinar discussion covered a wide range of issues including how best to ensure that payments are maintained on projects and how to cultivate relationships with project partners. Attendees shared in the chat their experiences of projects and payment and a number of interesting exchanges took place around those discussions. A common thread in the discussion and something that was amplified by many of the speakers was the importance of FIDIC’s Golden Principles in providing a vitally important guide to contract working. Time and again, these principles help to safeguard the integrity of FIDIC contract documents by ensuring that they are based on fair and balanced risk/reward allocation between the employer and the contractor. As a result, they are widely recognised across the industry as striking an appropriate balance between the reasonable expectations of all contracting parties.

Click here to download a free copy of the FIDIC Golden Principles from the FIDIC bookshop.

Click below to watch a recording of the Keeping cashflows flowing in challenging times webinar.


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