When we conducted our survey entitled Supplier vs EPC, Why is Vendor Documentation so Painful in 2016, we revealed some interesting results regarding the issue of holdbacks at the end of projects.
In particular, we found that it’s a big issue for both suppliers and EPCs but for different reasons:
Over 75% of suppliers reported experiencing payment holdbacks related to documentation; 15% agreed it was a fair practice while 25% felt it was a ploy to defer payment. Most suppliers are frustrated by EPCs who are slow to respond; 50% agreed that with shorter review/approval cycles, they would categorize holdbacks as fair.
So while holdbacks frustrate EPCs who aren’t getting the documentation they desire, from the suppliers’ perspective it’s a frustrating turn of events that they often feel is arbitrary and unwarranted.
Holdbacks usually occur when your customer isn’t happy with the documentation you provided (due to mistakes or otherwise incorrectly submitted documents) and holds back partial payment until you provide the documentation correctly. In addition to messing up your cashflow, it also causes you to spend more time and effort to fix your mistakes and keep your customers happy so you can get paid.
The key for suppliers is to take away the reason(s) for the holdback in the first place: provide final project documentation right the first time.
More from our survey regarding holdbacks:
Holdbacks are used to ensure the delivery of correct and complete project documentation. Based on the survey, suppliers feel the size of the holdback should vary based on their track record. Suppliers with high quality document work should not be subject to the same terms as a supplier with no document control capability. EPCs should spend some time defining the specifics of the document holdbacks. Many suppliers felt they were used more for EPC cash management, than a management tool.
If holdbacks remain an issue for you at the end of projects, contact us and let us show you how DocBoss can help.