“WE ARE NOT A BANK!”
“WE ARE NOT A BANK!”
If you are a subcontractor or vendor, especially if you are a minority or woman owned business enterprise, you have heard these words often. A somewhat typical response from the general contractors in our marketplace when one asks for a little help with an early payment on a construction project. As we all so very well know, general contractors do not pay their subcontractors performing the daily work on the projects until they have been paid by the owner. Cash flow starts with the owner and flows downward, sometimes never reaching the end of the line.
While I certainly appreciate and understand the “WE ARE NOT A BANK” response (often times stated with an extra adjective inserted prior to BANK), I question that this response is entirely correct. Certainly, from a literal interpretation, general contractors are not banks. There is no charter, no tellers, no ATM machines and very few GC’s have drive-through branches. But, they very much function like a bank. They lend money to the owners in our marketplace, sometimes in the millions of dollars, allowing them to fund their construction projects. They do so quite willingly—even sign a contract to that effect–and they charge no interest for the loans.
In turn the general contractors borrow this money from their subcontractors and the sub-contractors of their sub-contractors, the companies out in the mud pouring the concrete, building the walls and providing heat and light and running water to the buildings. They borrow this money interest free and they re-pay whenever the owner decides they have borrowed enough money from the general contractor and pay them back. This repayment process occurs every thirty, sixty, ninety or one hundred eighty days, whenever the time seems right for the owner. After all, the money the owners borrow from the general contractors is interest free, so why hurry the process. And the general contractors do not seem to mind all that much as they are borrowing the money interest free themselves. I should probably mention here that owners really do not pay back all the money they borrowed; they withhold ten percent for certain reasons that each seem to explain differently. Again, they are paying no interest on this loan so why not withhold some of the payment?
Sooner or later, it all works out. The building gets completed and after a year or so, all monies are repaid to all players, even the amount that was retained for those unexplainable reasons. Everyone is happy—except, of course, those players that did not make it through the process.
No, general contractors are not banks, and we understand that. But subcontractors are not banking or lending institutions either. Some are MBE/WBE sub-contractors out trying to make a living and pay weekly payroll obligations and satisfy vendors—including unions–who really do not understand this “pay when paid” mentality of our industry. They can only afford to work so long without payment for their services. Unfortunately, that time period is not thirty, sixty, ninety or one hundred eighty days. They have no sources for lines of credit or working capital loans so prompt payment for their services is a huge issue for MBE/WBE firms.
With the lack of available resources for working capital to the minority contracting community, the MBE/WBE subs have no other workable options other than to turn to the general contractors they are working with for a little help in making this extended process work for them. They ask for help, knowing full well that general contractors are not banks or lending institutions of any kind; they ask for help because general contractors are the only source of revenue available to them–and after all, they have performed their work and are due the money at some point in time. They are not asking for a loan; they are asking for prompt—or prompter—payment for work performed–monies rightfully due them. If this money does not flow promptly, they are unable to meet their contract obligations and they fail. It is quite simple.
Maybe it should not work this way, but this is the process we have created in this industry. A survival of the fittest mentality that simply leaves out the little guy. Until we all accept this though and leave the least of the fittest out of the equation and only contract with those well-established, well-financed subcontracting firms, the requests for financial help will keep coming.
If you are a general contractor and you can help, fine. I would suggest it would be to the benefit of all involved in the success of the individual project. If not, the MBE/WBE contracting community understands that general contractors are not banks; they simply have no other place to go.