A new construction report reveals that 64% of construction projects experience overbilling, highlighting a significant challenge in the industry. Despite this issue, the report emphasizes the need for the industry to adopt digital solutions to enhance financial controls.
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Overbilling on Construction Projects
Payapps, a construction software system that has won multiple awards and can be relied on by thousands of main subcontractors and contractors to streamline and standardize progress payment claims, recently produced a new study. A study that included more than one thousand construction professionals helped the report 'Building the Future: Navigating Challenges and Opportunities for Quantity Surveyors and Contract Administrators' discover that overbilling is a widespread problem.
Based on the findings, 47% of those surveyed had experienced overbilling on occasion, while another 17% had experienced it regularly. Although 44% of respondents expressed a desire to enhance cost management, they frequently encountered obstacles in the form of manual processes and time restrictions.
According to Geoff Tarrant, the co-founder of Payapps, excessive billing is not the root cause of this situation; nevertheless, it does make it worse. Payapps enables building managers to devote more valuable time to practical cost-management activities by automating time-consuming tasks such as progress payment claims and providing improved visibility into contract variations.
As mentioned, Payapp users are currently experiencing advantages. Through specialized construction technology such as Payapps, the report discovered that 87% of individuals who find contract variation management uncomplicated use it. Payapps allows construction companies to take charge of their financial situation and safeguard their bottom line by simplifying their challenging activities and lowering the amount of manual overhead they have to deal with.
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Consequences of Overbilling in Construction
When a contractor charges more than the actual value of the job that has been accomplished, this is known as overbilling. The contractor may intentionally do this to affect cash flow positively. On the other hand, it is also possible for it to occur unintentionally as a consequence of several different circumstances, such as incorrect calculations, inaccuracies in invoices, or arguments regarding change orders. If it needs to be discovered and corrected, overbilling can hurt project budgets and client relationships.
As mentioned, overbilling can have severe consequences for all parties involved in the construction sector, including clients, contractors, and the image of the building firm. When contractors make the mistake of equating overbilling with profit and decide to spend the money, they put themselves in a precarious position. This can result in stretched financial resources, damaging the contractor's capacity to fulfill other project expenses.
Moreover, a contractor's capacity to obtain bonding or to maintain insurance coverage may be negatively impacted if they overbill their clients. This might include more significant risks and potential liabilities. In addition, it may make the problem more difficult for them to take on new initiatives.
Also, overbilling can lead to legal problems between the client and the contractor, which would be unpleasant for both sides. The client might seek legal action to recover the overpriced sum, therefore affecting court expenses, legal fees, and damages even if they could be somewhat substantial.
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