Civil Engineering Reference
In-Depth Information
Client
(CapEx)
Tier 1 Turnover £bn
(OpEx)
The order and flow
of goods and
services
accumulating value
The order and flow
of payments down
the supply chain
accumulating time
(Project Management Services)
Tier 2 Turnover £m
(OpEx)
(OpEx)
(OpEx)
(Labour and Materials supply)
Tier 3 Turnover £bn or £m
(OpEx)
OpEx
OpEx
(Materials supply)
Figure 9.4
CapEx compared to OpEx - the paradox of expenditure.
in advance of receipt of payment. It is not a description of what occurs
in most cases. However, this type of behaviour is driven by credit avail-
ability, which creates cash-flow difficulties and which in turn is a major
cause of the financial failure of firms. For example, occasionally the
following tier in the supply chain may require payment before the flow
of payments reaches the tier above. This most often occurs at tier 2,
when payment for goods is required before goods are delivered to site or
on strict payment terms that can be enforced if further deliveries are
needed. These payments may need to be made by the tier 2 contractor
while still waiting for payment from the tier above. In these cases the
tier 2 supplier relies on credit and other unrelated payments, which in
a recession can be withheld or delayed to the detriment of the financial
health of the tier 2 supplier.
The patterns of behaviour described in Figure 9.4 are usually con-
ducted beyond the view or control of the clients of large construction
programmes. However, PSE suggests that it should not be entirely
beyond the scope of clients' control. PSE suggests that programmes
require sensitive and targeted interventions to ensure the continuity of
the programme, and the health of both the supply chain and the pro-
gramme's micro-economic environment to foster success. Therefore the
contracting strategy needs to focus on contract conditions, including
