Construction is critical to the Northwest Territories economy.

The industry’s importance goes beyond its contribution to GDP, which at an annual average of $395 million over the past decade is surpassed only by public administration and diamond mining. The structures we live and work within are created, maintained and renovated by construction companies, who employ thousands of NWT residents at incomes 26.6 per cent higher than the NWT average.

The many Northerners with careers in construction are not the only ones with a stake in the industry. The budgets and investment decisions of governments, local businesses and households are heavily influenced by the financial stability of the NWT construction sector. But there is a well-known threat to this stability that has already pushed many companies beyond the breaking point: late payments.

Late payments can occur in every industry, but the problem is especially damaging to small businesses in the construction sector, who often do not have the cash reserves to float the high upfront costs of construction while they wait on overdue invoices. Studies on this issue in Canada have found that late payments are a serious issue for almost 90 per cent of companies in the industry.

Construction companies react to the risk of late payments in a number of ways that are necessary to remain in operation, but are harmful to the greater economy. They hire fewer people, train fewer apprentices, and invest less in machinery and equipment that could have otherwise increased productivity. They also bid on fewer projects, which leads to a less competitive bidding pool and higher construction costs. When they do place bids, they factor the risk of late payments into their bid prices, which raises construction costs even further.

The late-payment problem is rooted in a unique aspect of the construction industry: its complex system of contracting and subcontracting. A general contractor responsible for the overall co-ordination of a project must hire numerous smaller subcontractor companies – who often hire other subcontractors – to provide all of the specialized skilled labour, materials and equipment needed to complete a range of different tasks while keeping a project on time and on budget. The larger the construction project, the more complex the supply chain becomes – and the more difficult it is for companies within that supply chain to get paid on time.

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