Engineering payments link project owners on one end and general contractors, subcontractors, and material suppliers on the other. Over the years, in tackling payment arrears, central and state-owned enterprises have often stood at the forefront. They are large in scale and draw high public attention, so they should also lead by example in making payments.
On September 14, a press conference held by the State Council Information Office proposed three "leadership" roles for central enterprises: not defaulting on payments and conducting dynamic clean-up, issuing fewer notes and paying more in cash, not issuing notes with maturities exceeding six months, and cleaning up unreasonable industry practices. The requirements were very clear: central enterprises must not continue to pass funding pressure downstream. But construction central enterprises have a rather awkward identity—they are the paying party in front of subcontractors, yet when facing project owners, they are also construction units waiting for engineering payments. Now the 60-day countdown for downstream payments has already begun, but who will pay the central and state-owned enterprises, and when, has no equally clear timeline.
Payments from Large Enterprises to SMEs Have a 60-Day Window, and This End of the Timeline Is Relatively Clear
Document No. 24 proposed that large enterprises, especially leading enterprises, should take the lead in committing to pay SMEs in cash within 60 days from the date of project delivery. The most important aspect of this rule is that it provides a specific number of days. After project delivery, payment timelines can no longer be pushed back indefinitely, nor can a long-dated note be used to keep subcontractors and suppliers waiting. Central and state-owned enterprises must also increase the proportion of cash payments and, after receiving cash, cannot turn around and issue notes to downstream parties. For SMEs, this is certainly good news. When payment should be made and in what form are at least clearer than before. But the 60 days is written only for the payment from large enterprises to SMEs; construction central enterprises collecting engineering payments from owners have not received an equally clear timetable.
The Obligation for Owners to Pay Central and State-Owned Enterprises Has Long Existed, But When Exactly to Pay Remains Unclear
Who pays construction central enterprises? The answer is construction units and project owners. According to the Government Investment Regulations, project funds should be secured in place, construction units must not be made to advance funds for construction, and finance departments should promptly and fully process fund disbursements based on approved budgets. Document No. 24 further proposed that government-invested project funds should be supervised throughout the entire process from allocation to payment. For existing projects that have been completed but not settled or paid, completion financial final accounts should be completed as soon as possible and engineering payments made, then general contractors should be pushed to pay subcontractors promptly. Owners should pay general contractors, and general contractors should then pay subcontractors—the entire chain of responsibility is actually clear. The problem lies in timing. In the same document, when it comes to large enterprises paying SMEs, it says 60 days; when it comes to owners paying general contractors, it says "as soon as possible." Sixty days is a clear deadline, but "as soon as possible" has no specific number of days. How fast is fast enough, and how long overdue counts as arrears, is still easily ambiguous in practice.
The Money Above Has No Clear Date, Yet the 60 Days Below Has Already Begun—This Is the Awkward Position of Construction Central and State-Owned Enterprises
Many projects undertaken by construction central enterprises are large public buildings, infrastructure, and government-invested projects. After project commencement, personnel, equipment, and materials are all on site. Even if the owner pays slowly, the project is difficult to stop immediately, and general contractors often have to find ways to keep construction going. Now downstream payments also have a 60-day requirement. Before a single engineering payment from above has returned, several subcontractor and material payments below have already come due. If the general contractor temporarily does not pay, it may be deemed in arrears and will not have played the leading role expected of central and state-owned enterprises. But if the general contractor pays first, the funds must come out of the enterprise's own pocket. When there are few projects, it might still manage to rotate funds, but as projects increase, the advanced funds grow larger and larger, and even the biggest enterprise cannot bear it. This is the rather helpless position of construction central and state-owned enterprises today. In the eyes of downstream parties, they are the client that has delayed payment; in the eyes of project owners, they are the construction unit constantly chasing payments. Two identities fall on the same enterprise: the timeline for paying downward is very clear, but the timeline for collecting upward is uncertain, and ultimately the general contractor can only absorb the pressure first.
Clearing Engineering Payment Arrears Cannot Just Make Central and State-Owned Enterprises Advance Funds First; Owner Payment Timelines Must Also Be Regulated
Requiring central and state-owned enterprises to lead in making payments is not wrong. SMEs have weak capacity to absorb shocks and indeed cannot wait indefinitely. But tackling arrears cannot only manage how engineering payments flow downward; it must also manage when funds at the very top come in. If project funds are not secured in place, construction should not be rushed to start. Completed government-invested projects cannot remain indefinitely in an unsettled, unpaid state. Owner payments to general contractors also need clearer milestones. When settlement is completed, when payment is made, and who is responsible for exceeding the deadline cannot always be written simply as "as soon as possible." Otherwise, the faster the general contractor pays downward, the greater the funding pressure it bears itself. On the surface, SMEs get their money, but in reality the original arrears have not disappeared—they have merely shifted from subcontractors to the general contractor.
Conclusion, Written at the End
The five ministries urging central and state-owned enterprises to pay engineering funds is meant to protect the more vulnerable SMEs in the engineering chain. But construction central enterprises are not the source of engineering payments; they too must wait for owners to pay. It is often said that even a penny can stump a hero. No matter how large an enterprise is, it cannot withstand receiving no money for a long time while continuously advancing payments downstream. Large enterprises paying SMEs have 60 days; owners paying large enterprises should also have an enforceable deadline. Only when engineering payments from above come in on time will the 60 days below not become pressure that the general contractor bears alone. Otherwise, central and state-owned enterprises are urged to pay on one side while chasing payments everywhere on the other, and this awkwardness and helplessness ultimately remain unresolved.