Josh Carter’s telephone still rings and he still receives inquiries regarding prompt payments on construction projects, but the sources of those communications have recently taken a 180-degree turn.
For years, the nearly 25-year veteran of John R. Jurgensen Co. recalls making and receiving inquiries about when project payments will be coming in and going out. “It used to be that as contractors we would have to pay our subs within 10 days, but we would always say, ‘Yes, we will pay them, but we need to get paid quickly as well. If you’re waiting six months to pay us, then the subs are having to wait six months and 10 days.’”
That wait – once an unpopular standard among heavy/highway construction contractors doing work in Ohio – is now significantly shorter. And Carter, who serves as John R. Jurgensen’s Vice President of Business Development & Construction Management, is seeing it.
“A few years ago, I would meet with ODOT to review large spreadsheets of outstanding change orders to prioritize them in order for us to get paid on the most critical,” Carter recalls. “Now, there are no spreadsheets to review – and (ODOT) is calling me. Typically to ask me to hurry up to approve change orders so we can get paid. So, the calls have flipped of who is pushing who!”
Improvements the past two years regarding prompt payments on Ohio transportation projects are making everyone happy – from primes and subcontractors to suppliers to ODOT officials.
Success in the expediting of prompt payments can be traced to ODOT’s Critical Success Factors (CSFs). CSFs are used by organizations, businesses and project teams as things to focus on in order to reach a certain objective or success.
According to projectmanager.com, “… Critical Success Factors are not a measurement of success, but rather the systems through which a company succeeds. These systems work in the ‘background’ of operations and projects at all times.”
ODOT Deputy Director, Division of Construction Management, Josh Bowman summarizes CSFs as: “Where things are measured, things improve.”
According to Bowman, while ODOT has utilized CSFs for a while to help “within the agency,” it is only recently that there has been a CSF pertaining to prompt payment in collaboration with the industry. “You want a CSF that is public facing – that benefits the public, industry and ODOT,” he said. “That’s where we were kind of struggling until we developed the prompt payment (CSF) … I was really happy to get that incorporated as another data point to see how we were doing as the Construction group at ODOT.”
The issues surrounding project prompt payment for the heavy/highway construction industry pre-dates the arrival of CSFs at ODOT – which have been used approximately the last 10 years – just ask OCA Director of Public Agency Advocacy Chris Engle and veteran contractors.
Engle, who, prior to joining OCA’s staff in 2006 worked with ODOT for more than 20 years, has dealt with both sides of the prompt payment issue. “I’ve been in the transportation industry for 42 years. “Both at ODOT and here at OCA I heard complaints from contractors about how quickly they are getting paid and how quickly change orders were being generated in order to get paid for extra work.”
While admitting that the procedure at the time in gathering and recording quantities for payment worked “pretty well” – the process still lagged. “When I started at ODOT, you had a paper process – you sat down in your field office with two carbon sheets to make copies and write in quantities to pay contractors,” said Engle of the procedure he followed while working in ODOT District 5 in the 1980s, ‘90s and early 2000s.
He said the “lag” occurred when it came to change orders and force account change orders, describing how the contractor and ODOT personnel kept track of labor, equipment and materials needed to complete the work. “That (took) a while to put together,” Engle recounted. “… ODOT would then process it. Meanwhile, the work had been done for months and then you finally got your money down the road. That’s been a problem forever.”
Bowman agrees, saying prompt payment has been an issue he saw throughout his more than 20 years working in ODOT District 7 and more recently working in the DOT’s Central Office. He admits delays in prompt payments had became the norm, saying, “I do think it has been a little bit of a culture thing, where the industry and ODOT just kind of understood that it was taking us a while to get things paid … especially on the change order side of things, and I think that just became the culture, unfortunately, over time.”
That culture of delayed change order payments was a hardship for contractors. “If you’re not getting paid and you have a substantial sum of accounts receivable on the books, you have to come up with money to make payroll; to keep materials coming in; and to run your business without the money that you are owed for the work that has been completed,” Engle said.
Bowman agrees. “At the end of the day, it is a really important thing to get paid timely no matter what you’re doing – it’s expected. And we shouldn’t be having contractors financing our work for months on end by not paying timely.”
Wanting to improve its turnaround time on prompt payments, Bowman said a CSF was created to hold ODOT personnel accountable in paying contractors quicker.
“We decided to develop a CSF that centers on prompt payment in order for us to just hold ourselves a little more accountable,” said Bowman. He added that state law requires prompt payment when agencies, such as ODOT, utilize private sector contracting. “We require prime contractors to pay subcontractors timely, we have a lot of contractual language and requirements for that,” he said. “Yet, we really didn’t have anything to hold ourselves accountable in paying the primes timely. If the primes aren’t paid timely then it makes it very challenging to pay their subs timely.”
Helping ensure quicker payments to contractors has been the creation and utilization of the ODOT Division of Construction Management’s Prompt Payment CSF, which consists of:
1. Daily Diary entries into AASHTOWare Project (AWP) that are carried forward to estimates paid to the contractor. The goal is 15 days to get the Daily Dairies into the estimates generated.
Bowman said the Daily Diary portion of this CSF is “our inspectors are out in the field inspecting and paying for the work every single day … The goal of (this step) is really to ensure that our project engineer and our project administration staff, more of our managerial staff, is reviewing those (Daily Work Reports) DWRs timely and approving them to allow them to get added to an estimate.”
2. Estimate approvals in AWP by the engineer, contractor and area engineer. The goal is seven days for all three approvals
Saying that this step in the CSF requires “some heavy communication back and forth between the contractor and the project level for sure,” Bowman said the project engineer works with the contractor to get material requirements for the project into AWP. This will allow payment for that item.
3. Frequency of Estimates. A minimum of one per month, with the goal of two estimates per month.
Bowman believes ODOT has improved substantially in this area to keep cashflow coming consistently to contractors during the project. “The Spec Book will tell you, just from a contractual perspective, that we’re required to pay a contractor once a month – once every 30 days,” he said. “Although the Spec Book has always required once every 30 days, there was somewhat of an unwritten rule we would pay every two weeks. The unwritten rule of every two weeks has been around for a long time, and over the past six to eight years the time of estimate approval was starting to take longer.”
The purpose of Part 3 of the Prompt Payment CSF, according to Bowman, “was to encourage by goal to have estimates approved every two weeks.” He noted that timely payment of estimates is crucial to contractors during an unstable economy when material and gas costs are affected.
4. Change Orders are necessary for overruns in original line items or new line items. Overrun payments greater than $500 will be adjusted and paid within a goal of 75 days.
Of the Prompt Payment CSF’s four parts, Bowman said the payment of change orders was the biggest prior issue – as he mentioned the previous average for contractors getting paid for quantity adjustments was 180 days. “We’ve set the goal for 75 days, which honestly in the future – as we get better – I would like to shrink that duration more,” he said. “… We have absolutely, positively improved tremendously. It really has changed the way districts approach their change order work on projects. It has been a huge benefit.”
Justin Shotwell, who is a District Construction Engineer (DCE) in ODOT District 5, said the Prompt Payment CSF is providing a metric that is guiding the districts to handle payments to contractors differently. The 12-year ODOT veteran said the former practice of processing change orders was at the end of the project, when time allowed or at the end of the construction season.
“Versus now, with the current metric the districts have implemented different practices,” he said. “In District 5, we’re trying to catch up with change orders monthly, so that keeps people on-track with money flow back and forth … Whether you talk about a big contractor, a small contractor or a DBE, it helps all of them to keep the money flowing.”
Carter detailed a current John R. Jurgensen project on Interstate 75 that illustrates the positive changes he is seeing in ODOT’s prompt payments. “… There were major changes from what was in the design to what was actually there,” he said of the five-year, retrofit pavement project. “There have been several hundred change orders on this job, and through all of those revisions – once something is agreed upon – I’m seeing the change order within a week or so. In the past, we probably would be reviewing a spreadsheet of 50 to 75 change orders and discussing the priority to pay these things … (Now) we just get the change order once it is approved.”
The Why of Lickety-Split Payments
It is no surprise that at the center of ODOT’s improvements in getting contractors paid quicker is the use of AWP software and technology.
AWP is a software suite used at ODOT since early 2023. The software enables management of project information for both the Department and contractor throughout the entire contract and construction cycle – from cost estimation to proposal preparation, letting bids, construction and material management and data collection.
“It’s definitely helping from the approval standpoint,” said Shotwell of Daily Diary entries, estimate approvals, change orders and payments. “It used to be a lot of physical signatures. So, you emailed back and forth and waited on a scan. Now, in the new system it’s all electronic. So as soon as that estimate or change order is available for approval, the appropriate people that are doing those approvals get automatic emails saying, ‘It is ready for you,’ and it’s sitting on your desk … It’s just a lot faster with a click of a button.”
“We have embraced some better software,” said Bowman of AWP. “… In the early 2000s, projects were taking a long time to finalize because we were not verifying materials as frequently as we should have been. In AASHTOWare, it requires that verification at payment time, which makes us pay much prompter; which makes our materials processing much better; which helps us to finalize the job out quicker …”
For DCEs, AWP provides a district-wide look at the click of a button of what phase prompt payment stands for a project – which for ODOT District 5 in late-July meant information on any of the current 45-50 active projects. “From a DCE perspective,” adds Shotwell, “I can see what is in my whole district; what estimates are sitting, waiting approval from a contractor’s level or at our district’s final approval level. Versus the old software, you really couldn’t do that; it was hard to tell what part of the process we were stuck.”
“What really needed to happen was the Critical Success Factor when it came to prompt payments happening faster,” concluded Engle, who mentioned past attempts to find solutions were through the Prompt Payment Taskforce – a subcommittee of the ODOT/OCA Heavy Highway Committee. “AWP allows you to measure that much more easily than you ever could back in the day. The data is all there, and you just need someone that knows what they’re doing to put it together and generate the report. And, obviously, ODOT has folks that are really good at that.”
It Takes Two: The Payer & The Payee
Just as partnering from both ODOT and the contractor is needed for the successful completion of projects, the same buy-in from the two sides is essential for prompt payment.
“The expectation is on the contractor to be timely as well,” said A&A Safety Inc. President Bill Luttmer. “In the new AASHTOWare system it holds us both accountable – which is a good thing. I can’t complain if I haven’t gotten in my CRMs, or not gotten in my CERTs, or not gotten in my certified payroll.
“I think the bar has been raised on both sides: ‘We will pay you faster, but in return you’ve got to make sure I have all of this stuff in-hand,’” Luttmer added.
Shotwell said he and fellow DCEs are seeing the contractors’ support. “Prompt payment only happens if you have buy-in from both sides – from the owner and the contractor sides,” he said. “Obviously, there is an approval side on the contractors’ side, so they own that as much as we do at ODOT … With the new system, we have seen buy-in from the industry in their turnaround times on approving estimates and change orders.”
While Carter’s telephone and email in-box still keeps him busy, the handling of inquiries regarding prompt payments has quieted. “I’m not hearing from them,” he said of subcontractors asking about payments, “and that tells me that they’re happy.”