Testimony to Senate Standing Committee On Banking, Trade and Commerce
February 3, 2017
Testimony to Senate Standing Committee
Banking, Trade and Commerce
February 2, 2017
Thank you Mr. Chairman for the opportunity to appear in front of the Committee and good morning to everyone.
My name is Ralph Suppa and I am President & General Manager of the Canadian Institute of Plumbing & Heating. Founded in Montreal in 1933, the Institute is a national not-for-profit trade association representing over 270 member companies who are the manufacturers, wholesaler distributors, manufacturer’s agents and allied companies who manufacture and distribute plumbing, heating, pipe valves and fittings, water works and other mechanical products. The Institute represents an over $ 6 billion dollar industry and employs over 20,000 Canadians.
The Canadian Institute of Plumbing & Heating would like to go on record supporting Bill-S224 the Canada Prompt Payment Act and we congratulate Senator Plett and the National Trade Contractors Coalition of Canada for their work on this file. Late payment is a serious impediment to all our members making a trying economic condition even more difficult and in some cases forcing companies to lay off workers. We believe that the payment status quo is not working. We also specifically support the provision that would
bind the federal government to paying its bills for completed, certified construction work within 30 days of it being certified as complete. We particularly support the same 30 day requirement down the contractual chain as outlined in Bill S-224.
The Institute also believes that the payment status quo is not working with payment not being passed onto the trade contractors promptly and without hassle causing serious hardships throughout the distribution channel from trade to wholesaler distributors and ultimately to their manufacturer partners. Wholesaler distributors are dependent upon cash flow to maintain a healthy balance of providing product services and ensuring manufacturer’s payment. If a contractor is forced into an “on hold” position it has a
detrimental effect on the company being able to continue business on any other projects they are involved in.
Generally speaking, large mechanical contractors tend to order product in large quantities and then the wholesaler distributor releases product as they need it. Wholesaler distributors incur significant carrying costs when products are delayed as they often buy early in order to guarantee product a vailability when required. Next the distributor invoices the contractor at the time of shipping the product. Standard industry payment terms are 2% thirty days or 2% 15 month following. If you factor in the current 90 or 120 days which has become the norm wholesaler distributors have to pay their manufacturing partners on an average of 30-35 days they also incur financial costs due to the extension of the terms.
The overall cost to wholesaler distributors include:
1. Warehousing and inventory holding costs. Delays to ship product to the construction site for any reason will impact this;
2. Extension of financial terms costs. Because of the non prompt payment the variance between wholesaler distributor payment to manufacturers and the payment from mechanical contractors is approximately up to 90 days;
3. Delays in construction create havoc on product specification changes to projects as engineers are more likely to change the specification if time allows the opportunity. Subsequently the wholesaler distributor can be left holding product purchased for a project that i) cannot be returned to the manufacturer ; ii) incurs significant restocking charges from the manufacturer which mechanical contractors rarely agree to pay and iii) may have been deemed obsolete/discontinued in the time lapse which results in a 100% financial burden to the wholesaler distributor; and
4. Changes to project timelines are challenging to track and prepare for amongst all other daily business requirements as there is a significant amount of invested time in human capital that is required for project management.
With the passage of this bill a more concise and structured payment schedule process will assist the contractor and the wholesaler distributor in more efficiently coordinating product installation and delivery.
In consultation with our members and based on the above issues we estimate that the financial impact to our members because of non prompt payment can be upwards of $25 million dollars annually.
In conclusion, while Prompt Payment Legislation is needed at all Canadian jurisdictions, this is an important first step in improving cash flow on all federal projects by legislating that contracts issued by the Department of Public Services and Procurement and Defence Construction Canada include prompt payment provisions for all contractors to whom work is awarded. This would reduce prices for taxpayers through more competitive bids, improve project completion times, and lead to an increase in hiring. It is also clear that the benefits of the Prompt Payment Act would not only be felt in new infrastructure and construction projects, but also on projects to retrofit or upgrade existing infrastructure to ensure high levels of energy efficiency. Upon the passage of Bill S-224 it is our hope that the legislation will act as a catalyst and a positive example for the other 13 Canadian jurisdictions to follow.
Mr. Chairman, the Canadian Institute of Plumbing & Heating is in support of Bill S-224 with a view to helping make this a very positive, effective and meaningful Bill for Canada’s construction industry. Thank you for this opportunity and I would be delighted to address any questions.