IPEX application scenarios

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IPEX

Tailor the level of control and security

IPEX allows developers to tailor the level of security / control as they deem necessary – this is typically influenced by the specifics of the current project situation and/or their relationship with the builder.

Transparency and oversight can be varied greatly,and builder payment can also be directly linked to rightful payment of all subcontractors and suppliers.

As you’d expect, builders on distressed projects tend to be managed with higher levels of oversight/control, while those willingly accepting IPEX terms on a new project tend to get more ‘builder-friendly’ set-ups.

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IPEX developer view
IPEX

Application scenarios

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Trusted builder partner / strong delivery track record

IPEX as a preventative measure ‘Standard’ risk projects

The high value, low margin nature of construction means that very little needs to go wrong for a ‘healthy’ builder to suddenly find themselves under significant financial pressure – there is always a level of risk.

On ‘standard’ risk projects, developers typically run IPEX in a ‘builder-friendly’ mode; contract values, payment amounts and builder margins remain confidential. These developers’ just want to confirm that subcontractors and suppliers have been paid in line with expectations (QS assessment) before they approve further claims.

Practically, the level of transparency provided by IPEX standard portal view should not be of concern to any builder and most (~80%) agreements are implemented at this level. Developers also have the added protection of being able to escalate visibility levels should a ‘payment default’ event occur (as defined by the contract).

IPEX setting
'Standard risk: Typical commercial set-up - Prevention focus

Developer portal view

Standard view - no contract or payment amounts are visable*

Entities required to be paid through IPEX

'Key' trades only as defined by the contract

Builder payment method

Builder can immediatley access payment for prelim/margin/direct costs as per QS report. Balance of progress payments of approved subcontractors and suppliers.

Developer notification/approval of new payees

Not required

Subcontractor validation of contract value

Not required

Joint approval of subcontractor payment

Not required

Subcontractor retention to be held under IPEX

Required
*Contract contains provisions which allow escalation to visibility/control over project account under payment default event.
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Builder in financial distress / non-payment of subcontractors and suppliers

IPEX as a preventative measure ‘Higher’ risk projects

In higher risk instances, developers and/or lenders may wish to link payment of builder entitlements to the ‘on time & in’ full payment of subcontractors & suppliers; this can be automated – the builder may receive an agreed percentage (prelim & margin) on every dollar paid out of the account – or, via a developer approval process.

In these scenarios, the builder is required to pay all entities linked to the previous claim before they can access their own payment. As you can imagine, subcontractors & suppliers tend to be paid VERY quickly under this model (typically within 24 hours of progress payment landing) which not only reduces developer/lender risk, it also keeps those onsite extremely happy.

IPEX setting
'Heightened' risk: Typical commercial set-up - Prevention focus

Developer portal view

Full open book or hybrid view (open book for any high value contracts or any requiring additional payment)

Entities required to be paid through IPEX

All subcontractors and suppliers outside those identified as preliminaries or overheads to be paid via IPEX

Builder payment method

Builder must demonstrate that all required subcontractor/supplier payments have been made in full before balance (builder prelims/margin/costs) are released.

Developer notification/approval of new payees

Required

Subcontractor validation of contract value

Not required

Joint approval of subcontractor payment

Not required

Subcontractor retention to be held under IPEX

Required
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Builder in financial distress / non-payment of subcontractors and suppliers

Managing distressed projects

Most builders have endured a series of loss-making projects of late, Many are taking on new projects while already in significant trouble, while even the ‘healthy’ ones are often only a bad contract or a missed payment away from being in distress. As a result, developers are frequently being asked to support builder cashflow in the form of a loan or worse, some are being hit with requests (read: demands) for significant additional payments outside of the contract to stop their builder from walking off the project.

In addition, these builders are typically working on multiple projects at various stages of completion (and likely, distress), which makes it critical to ensure that project funds aren’t immediately being shifted into the builders’ other projects. To this end, IPEX not only ‘ring-fences’ funds to a specific project, it can also allow developers to isolate individual subcontractors or suppliers for payment.

Not only will developers tie payment of builder entitlements to the ‘on time and in’ full payment of subcontractors and suppliers, in extreme cases, a joint-approval process may be mandated; subcontractor and supplier payments continue to be made from the builders account however, the developer checks and approves the payment file before it is processed.

IPEX setting
'Distresed project' Typical commercial set-up

Developer portal view

Full open book or hybrid view (open book for any high value contracts or any requiring additional payment)

Entities required to be paid through IPEX

All subcontractors and suppliers outside those identified as preliminaries or overheads to be paid via IPEX

Builder payment method

Builder must demonstrate that all required subcontractor/supplier payments have been made in full before balance (builder prelims/margin/costs) are released.

Developer notification/approval of new payees

Required

Subcontractor validation of contract value

Required

Joint approval of subcontractor payment

Required in extreme cases

Subcontractor retention to be held under IPEX

Required
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Including construction management contracts/large domestic residential

Cost plus contracts

Cost-plus contracts are easily managed via IPEX; these are run under the open book setting which makes validation of costs/payments simple & is not controversial for builders given they’d need to provide evidence of costs regardless. 

Typically, the builder receives an agreed percentage on every dollar paid out of the account (they have to pay their subcontractors & suppliers to get paid).

IPEX setting
'Standard' risk: Cost plus set-up - Prevention focus

Developer portal view

Open book view - all contract and payment values are visible to the developer/lender

Entities required to be paid through IPEX

All subcontractors and suppliers outside of those identified as preliminaries or overheads to be paid via IPEX

Builder payment method

The builder will receive an agreed percentage (margin) automatically as each subcontractor/supplier payment is processed.

Developer notification/approval of new payees

Not required

Subcontractor validation of contract value

Not required

Joint approval of subcontractor payment

Not required

Subcontractor retention to be held under IPEX

Required
Payments

Cash flow support for builders and selective transparency by trade

Once a developer can be certain that all payments made are reaching the intended recipients on time and in full, upfront payments become viable.

Developers may choose to make an initial upfront payment to assist their builder fund site establishment costs and/or certain long lead time material deposits under IPEX. Payments can even be ‘ring-fenced’ to a specific supplier to ensure only they can receive these funds.

These payments are allowing builders to lock in material costs early and start the project in a cash positive position.

IPEX ‘hybrid’ view allows certain trades to be set to open book for full transparency, whilst the rest operate under standard view with concealed contract and payment values.

This is perfect for provisional sums; costs likely to change after the contract is signed can essentially be handled under a cost-plus arrangement, with the rest of the project running at the agreed fixed price.

Under IPEX

Developer protections

  • All progress payments are ring-fenced to the project and can only be used to pay approved subcontractors and suppliers on your project
  • All subcontractors and suppliers are subject to full KYC/AML checks and have account details independently verified before they are eligible for payment. BSB and Account Numbers are then cross-referenced with the payment file the builder submits – payment is blocked if details don’t match
  • The developer can view (and if need be, approve of) any subcontractors and suppliers that are linked to the project account before they are eligible for payment
  • The developer can confirm which subcontractors and suppliers have been paid, when and how much* before approving additional claims, reducing the risk of misappropriation and making ‘cost to complete’ reports far more reliable
  • In cases where risk is higher or greater control is deemed necessary, the developer can ‘isolate’ a specific subcontractor or supplier for targeted payment
  • Certain ‘key trades’ may be set to ‘open book’ to satisfy oversight requirements including the payment of supplier deposits or similar, whilst other contract/payment values can remain confidential (payments made under standard view are expressed as a percentage of contract value which is sufficient to ensure amounts paid are in line with work performed onsite)
  • If required, the developer may elect to link the payment of builders’ entitlements to subcontractor/supplier payments – an active incentive for the builder to distribute funds quickly and in full

* Standard developer portal view shows payment as % of contract value. Open-book developer portal view shows subcontract/payment values.

Testimonials

What our customers say

"At Frasers, we take our commitment to every project, and every investor, builder, subcontractor, supplier, and customer we work with seriously. That means putting in place financial frameworks and processes to ensure that every dollar is used for its intended purpose, and there is full accountability and transparency over the budget for a project.” “We’re so excited about the Encompass development, which has a real ‘wow’ factor, and through IPEX we’re better positioned to deliver the project securely and successfully.”
Sarah BloomGeneral Manager Development Victoria
Sarah Bloom
"From the moment I understood what IPEX provided I had no hesitation in introducing it to BlueScope. With such a major capital works project it was clearly a very prudent risk management tool. With hundreds of millions of dollars being paid to suppliers and subcontractors through major contractors, securing certainty that monies were being delivered into the accounts of the substantial number of subcontractors and suppliers was critical.“
Steve ChandlerCEO
Steve Chandler
"After a year of utilising the IPEX platform on one of our key commercial construction projects, the experience has been overwhelmingly positive. The platform’s user interface and our customer service experience have exceeded our expectations, significantly bolstering the security and efficiency of our collaboration with the builder. The adoption of IPEX has been embraced by the builder and & it provides additional comfort to trades particularly with the current construction industry challenges."
John VickersDirector
John Vickers
“Based on our experience IPEX should be mandatory. It is now an integrated and essential part of our governance. It’s delivering a new standard of providing trust downstream to our subcontractors and suppliers that they’ll be paid and upstream to our clients and the financial institutions funding these projects.”
Ken O'ConnorDirector
Ken O'Connor
“IPEX delivers the security of funds subcontractors need on projects. Everyone prices risk into jobs; however, with the IPEX concept, there is a reduction of payment risk, which should translate into a more competitively priced trade insurance outcome. It’s really in everyone’s best interests in the long run to use IPEX.”
Sam LeslieGeneral Manager
Sam Leslie
“Once we were aware of IPEX and decided to implement this new standard for project payments, it was a seamless onboarding and end-user experience. It reduces risk and addresses trust and relationship building in one platform. This will put us in a powerful position as the demand for construction labour increases.”
Rob MoolmanManaging Director
Rob Moolman
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