Getting paid on public contracts: cash flow, holdbacks and late invoices

Public buyers are some of the most reliable payers a contractor can have. They're not going out of business, and they don't usually dispute invoices to squeeze a discount. But they pay on a process, and the process takes time. A crew that wins a big contract without planning for cash can be in trouble before the first cheque arrives.

How does a public buyer pay?

The usual chain looks like this:

1. A purchase order or contract number is issued when the contract starts. Every invoice needs it.
2. You invoice in the format and frequency the contract sets: monthly, per visit, per milestone.
3. The department approves the invoice, confirming the work was done. If you sent it to the wrong person or it's missing information, it waits.
4. Finance pays, usually by direct deposit, on its payment run.

Most delays happen at step 3, so make approval easy: the right reference number, a clear description, the period covered and supporting records if the contract asks for them.

How long does it take?

• Federal buyers: Treasury Board policy sets a standard payment period of 30 days, starting from the later of receiving a proper invoice and accepting the work. If payment is late and it's the government's fault, interest is generally paid automatically. If there's a problem with your invoice or the work, the department should tell you within 15 days.
• BC municipalities, school districts and other public bodies: each sets its own terms, usually stated in the contract. Thirty days after an approved invoice is common, but check.

Remember the clock usually starts when the invoice is approved or the work accepted, not when you finished the work. For a monthly service contract, money for work done in early January might arrive in late February or March.

What are holdbacks?

On construction and improvement work in BC, the Builders Lien Act requires the buyer to hold back 10 percent of each payment, until 55 days after the work is certified complete or finished. Some service contracts that involve improvements to land or buildings fall under it too. If you subcontract, you'll hold back from your subs as well. Plan for a tenth of your revenue on those jobs to arrive months later.

How much cash do I need to start a contract?

Work it out before you bid:

• Start-up costs: hiring, training, uniforms, new equipment, mobilization.
• Two to three months of running costs: wages (paid every two weeks, whatever the buyer's schedule), fuel, materials, insurance.
• The holdback, if it applies.

If that's more than you have, talk to your bank before you bid about a line of credit secured on the contract. A signed public contract is good evidence for a lender.

What if a payment is late?

1. Check the invoice was received and approved. A quick email to your day-to-day contact often finds it sitting in someone's inbox.
2. Contact the contracting or purchasing officer if that doesn't work.
3. For federal contracts, the Office of the Procurement Ombud can review complaints about contract administration, including late payment, regardless of the contract's value.
4. Keep working, and keep records, unless the contract allows you to suspend for non-payment. Stopping work without a right to can put you in breach.

Habits that keep cash coming

• Invoice on the day the contract allows, not when you get around to it.
• Match the contract's format exactly. Same item names and units as the pricing form.
• Attach what's needed: logs, timesheets, photos, the clearance letter if they want one with each invoice.
• Get extra work approved in writing first, with its own reference, so the invoice isn't disputed.
• Track every invoice until it's paid.

See your first public contract for the rest of what changes after you win.