ProjectPass helps subcontractors and materials suppliers get pre-qualified for capital intensive projects

Financial Prequalification Eliminated

Payment Waterfall in construction is due to payments stopping at each tier of builders before reaching their final destination
Delays in construction payments are a result of top-down payments that stop at each project management level

Risk was Managed Top-Down by Using Money as Leverage

Payments Stopped at Every “Management” Level

Creating Payments Delays

Top-Down Waterfall payments create cash flow gaps for small and minority business at the the end of the payments chain
cash flow gaps for small construction businesses from top-down payments

…But Small Businesses have Limited Access to Financing, especially those from Underrepresented Groups

SBE MBE and DBE have limited access to trade credit and are unbanked
Small construction Businesses are Underbanked due to the cash flow problems created by standard payment workflows
Small Businesses have very limited access to external finance and banking

…Resulting in a Dependency Upon Personal Savings and Retained Earnings

Small construction businesses make use of a low amount of external capital, depending upon personal and business savings

…and Profit Margins are Low which Means Small Construction Businesses Cannot Maintain Adequate Cash Reserves

14 days

Cash Buffer

for 89% of Hispanic and 94% of Black Businesses

source: JPMorgan Chase Institute

Small Minority Businesses have low cash reserves to fill cash flow gaps
Understood Bonding Due Diligence Criteria
Bonding Due-Diligence is much different in emphasis than common understanding

…Making Performance Bonding Challenged since it’s largely based upon Financial Due-Diligence

Reality of Bonding Due Diligence is largely based upon capital and financing both of which are limited in availability for small and minority businesses
Bonding due-diligence is focused on capital strength and financing access for both the business and business owner
Bonding due-diligence is focused on capital strength and financing access for both the business and business owner
Survival Rate of Construction Small Businesses by Year

source: US Bureau of Labor Statistics

Consequently, Survival is Unlikely

Payment Delays Create Cash Flow Gaps That Cannot Be Filled

Large and capital intense construction projects create operating and survival risks for

…Which is a Problem for Everyone – Particularly the Developer

Financial Distress in Project Ecosystems Introduces Project Delays


Project Delays

are Introduced by Poorly Capitalized Subcontractors (Prequalified)

Financial Stress from managing cash flow introduces delays as subcontractors improvise solutions that run counter to project completion progress
Financial stress in construction ecosystems creates project delivery delays
construction subcontractors and materials suppliers are compelled to complete prequalification documents

Financial Prequalification Standards are Unrealistic and Complicated for Under-Resourced Small and Minority Businesses

Financial Prequalification is a Barrier to Entry

Financial Prequalification is a barrier to entry for small and underrepresented businesses
Financial prequalification is a Barrier to entry for small and minority businesses
Financial Inclusion has been identified as a major barrier to increasing wealth

“Financial Inclusion” is the name of this Challenge

The Consensus is that Financial inclusion is a Key Enabler to Boosting Prosperity 

Capital access creates economic prosperity for small businesses and communities
Capital access creates economic prosperity for small businesses and communities

Financial Inclusion will Attract and Grow a New Workforce Needed to Fill the Ongoing Shortage


2022 Workforce Shortage

source: Association of Builders and Contractors

Financial Barriers are preventing the construction workforce from expanding
Financial prequalification born of poor payment workflows and poor access to financing is a limiting factor for workforce size and growth
To summarize the challenge for small and minority small construction businesses, top-down waterfall payments create cash flow gaps that cannot be filled because businesses are underbanked and have very small cash reserves. This creates risk for the developer who address it by imposing unrealistic prequalification standards that act as a barrier to entry and limit the size and diversity of the workforce.

Waterfall Payments Create the Very Problems Developers and GC’s are Trying to Avoid

Project access challenges for small and minority construction businesses are created and reinforced by the top-down waterfall payment process that creates cash flow gaps. These gaps cannot cannot be filled because of thin capitalization or little access to external financing.
Introducing a new payment workflow that solves financing challenges for small construction companies by making payments direct to final beneficiary
Hub & Spoke Payments solve payment delays

 Funders Make Fractionalized Payments direct to the final destination

In contrast to waterfall payments, hub and spoke payments release money directly to the final beneficiary. This avoids delays created by stopping at intermediaries
The lack of reasonable financing options available to small businesses is a limiting factor in expanding the workforce
The lack of reasonable financing options available to small businesses is a limiting factor in expanding the workforce
Local Approvals with Express Construction Payments

“Direct-to-Final” Payments Maintains Existing Approval Processes with Programmatic Release   

The cash flow requirements are filled by upstream team members such as the GC, Lender, or developer with direct and real-time payments to the value-chain endpoint such as the frontline sub or materials supplier

Circumvents Financial Challenges Faced by Small and Minority Business with “In-Kind” Capital


Payments reach final beneficiary without risk
Better Control of payment workflow
Better Information of how money is spent
The impact on the capitalization of small construction subcontractors and materials suppliers completely replaces the need for external financing

Circumvents Financial Challenges Faced by Small and Minority Business with “In-Kind” Capital


Capitalization of Traditional Small Business is dependent upon credit cards and trade credit both of which are expensive and limits company size and growth
Capitalization of construction subcontractors and materials suppliers INCREASES GREATLY so that they can access in-kind capital to expand production capacity and grow business operations
LARGER CAPITAL ACCESS to finance construction production
construction Production capacity is increased with larger amounts of inexpensive capital that is easily obtained
The invoice value-at-risk in a construction budget is still large after using hub and spoke payments to fill cash flow gaps

Hub & Spoke’s Fractionalized Payments Maintains Enough Invoice Value-at-Risk to Align Financial Incentives


Typical Invoice represents 100% payment risk to subcontractors and materials suppliers creating cash flow problems and introduces project risks
Chipi's Fractionalized Payment workflow with direct-to-final destination payments addresses cash flow problems of subcontractors while also maintaining ENOUGH invoice VALUE-AT-RISK to maintain financial alignment of incentives
Subcontractors engage in behaviors that are not in their interest or that of the developer as they attempt to manage scare cash flow
Solving cash flow and capitalization challenges for construction subcontractors and their suppliers eliminates undesired behavior such as bids based on credit availability versus prices, purchasing materials at the last minute to conserve cash, shifting production to faster paying customers, collaboration breakdowns, and choosing not to bid for work.
Use your payment workflow to BEAT THE COMPETITION FOR TALENT

Use Hub & Spoke Payments as a Way to Compete for the Best Subcontractors and Materials Suppliers

Leadership On Diversity, Equity and Inclusion