Whether you’re building a wind turbine farm or a commercial office building, the basics of construction are the same. And because of this, we are now seeing horizontal construction software solutions focus their efforts towards high growth industries like distributed energy and infrastructure development.
Energy and infrastructure today are benefiting from investor interest, federal grants, and tax credits. But in the end of the day, and in order for these projects to be built in a timely manner, we need to ensure that this money is making its way into the pockets of the contractors that are putting the steel in the ground.
So how does construction work? And how can we use construction software to increase construction productivity?
Well, at the heart of it, it’s pretty simple: construction contractors and material suppliers show up to the jobsite if they’re getting paid. Timely payment is the number one solution to improving construction productivity. Unfortunately, late payment is a massive issue in the construction industry, which drags down productivity and affects project timelines.
In construction, money flows from the top of the hierarchy to the bottom. At the top we have the lender / equity investor who provides capital for the project. Every month, the lender will ask the owner of the project for a set of documents (photos, budgets, change orders) that demonstrate progress on the project. This set of documents is known as the “draw package,” and once it’s approved, the lender will disburse a quantum of capital to the owner.
Once the owner receives the capital, the owner pays the general contractor, who pays the subcontractor, who pay the material and equipment suppliers. And, as you can imagine, it takes time for money to flow down the ladder.
Fortunately, we now have solutions to expedite this flow of capital. New software products can easily wrangle documentation from the jobsite to create the draw package for the lender. And companies like Handle.com help material/equipment suppliers and large subcontractors collect payment from the parties above them in the payment flow.
These software solutions expedite both the flow of documentation up the hierarchy and the flow of capital down the hierarchy. Software acts as the engine oil for the efficient movement of documents and capital across the ladder.
So how do we build more wind farms? We use construction software to get our contractors and suppliers paid.
As always - if you’re interested in speaking about climate/industrial software or are building a company in the space, please reach out at my email below!
Mark Tomasovic
mtomasovic@energizecap.com
Please don't believe that more apps will magically "solve" this problem. The slow pay situation is the way it is because it works for someone along the way. Long as the people who are last in line don't have negotiating power it'll be viewed as good business practice. Even more so now that excess cash earns over 5% short term. The construction industry knows damn well why things work the way they do. There just isn't the will to fix them. A very common tactic involves using a third party to hire people that should be company employees. The third party gets a large cut of the money, whereas if the company would pay more directly to the people they hire they'd get better quality workers. So the cost to the company's the same, but the actual talent is paid less. Heaven forbid that the company should pay the talent more than their staff makes, though. Better to write the check to a labor contractor. So much of this is about leverage, not inefficient processes.