Liquidity in the interior fit-out industry
Completing an office project on time and on budget is a challenging process. Managing the interests of investors, designers and contractors in the construction process can be a complex balancing act.
Completing an office project on time and on budget is a challenging process. Managing the interests of investors, designers and contractors in the construction process can be a complex balancing act.
An investment in a new office is first and foremost a financial challenge which, for a significant period of time, is handled by the contractor, as it is the contractor who has to pay for the majority of materials and subcontractors in advance. Therefore, before choosing a partner, an investor should enquire about the status of the counterparty's financial liquidity, the principles of granting guarantees and the transparency of costs. Using the example of the Sage office fit-out project, we will point out the most sensitive issues in this process.
Sage is a large, international IT company that has chosen the Eurocentrum building in Warsaw as its Polish headquarters. In 2017, Tétris designed and built the first part of this space with an area of 2,600 sqm, and recently finished arranging two more floors with an area of 1,500 sqm. The company works with Polish and international teams, so commissioning a fully equipped office on time was a priority.
From the moment of signing the contract, time is of the essence for the investor. Each day of delay is a potential additional cost. “A loss of income related to delayed commencement of operations or liquidated damages payable to the lessee due to a delay in handing over the leased area (if the client is the owner of the building) may also be a cost,” explains Anna Wąsiewska, attorney-at-law from the law firm Wawer Wąsiewska. Adwokaci. Spółka partnerska.
The contractor’s remuneration is paid out in specific installments as the project implementation progresses. In practice, this means that the contractor must order most of the materials in the first days of project implementation due to long delivery times. Manufacturers require up to 40–50 percent of the price to be paid in advance, which implies that the contractor must pre-finance a large part of the project long before the first invoice is issued to the investor.
“The fact that we are able to pay PLN 5-6 million within a month is a huge plus for the client. Otherwise, the project would have to wait two or three months until the funds were collected,” says Paweł Brodzik, Managing Director of Tétris. “Working for large companies, we have to bear in mind corporate invoicing rules. Sixty- or ninety-day payment periods are standard,” he adds.
This means that when you have two or three months to implement a project, you need to finance the costs of subcontractors immediately and then wait for the invoice to be paid by the client. In corporations, such long payment periods are normal practice.