The Office of
National Statistics reported the
Construction sector shrunk by 3.4%
in the first quarter, and although
reports suggest a 0.5% recovery in
the second, the fact is there is
less work out there. It also seems
that those who have the work are
feeling the squeeze, are holding on
to their money when they get it and
are not in any hurry to pay
suppliers or sub contractors. The
National Specialist Contractors
Council reported that only 31% of
its subbies were paid in 30 days and
across construction as a whole it
was 2%.So much for the
Housing Grants Construction &
Regeneration Act and the Late
Payment of Commercial Debts (
Interest )Act, naming and shaming
and reporting slow payers to credit
agencies. If you are a supplier or a
subbie you are on your own. So what
can you do for a little self help?
When supplying goods make sure
that you deal on your own terms and
those terms take precedence over
those of the buyer. Make sure that
you credit check the payer and try
and get payment terms that take the
risk out of the supply, payment up
front would be a good start. Take
out the risk of delay and ensure
that you have effective retention of
title clauses and that the goods are
clearly marked as yours and with
reservation of title provisions
which will be effective on
insolvency….even the big boys go
under, just look at Connaught and
Rok.
If you don’t trade on your own
terms, and most subbies don’t, make
sure that you read the contract. It
sounds obvious but it is amazing how
many deals are done with no written
terms or terms that as good as say
‘come and do the work for nothing,
in fact pay me’. Many sub contracts
are dependent on the payer getting
paid or certified by the Employer or
superior contractor and will include
provisions protecting them in the
event of that Employer or superior
contractor going bust. So make sure
you understand the payment
mechanism. If you can’t live with
it, don’t sign up. Ask for better
terms. Even when getting paid ensure
that invoices are not raised early
which triggers VAT payments. Try and
do away with retentions. Understand
the regimes in place for variations,
dayworks and extensions of time and
have some standard letters or e mail
templates ready for completion so
you comply at every stage. If not
getting paid for goods,ensure you
retain title; they are identified as
your goods and equipment, or have a
key removable mechanism. If you
employ sub contractors or suppliers
ensure that your terms for payment
upstream are reflected downstream so
you don’t default in paying them.
In the event of default in
payment ensure that you have the
right to suspend and enforce that
right carefully and properly. Watch
for signs of instability such
as:slow payments, payments of lump
sums on account, excuses for late
sign off or release, post dated
cheques, disputes for reasons not to
pay.
Should there be problems ensure
that it is possible to enforce your
rights in adjudication and avoid
Arbitration clauses which are slow
and expensive routes to a solution.
But first and foremost talk; use
common sense and negotiate. Find out
why things are going wrong and how
they will be put right and when. Set
dates and milestones for things to
happen, within your own team as well
as for the payer.
There are a number of ways to
ensure that you reduce the risk of
not getting paid in these difficult
times. They begin at the beginning
with the negotiations, the contract
and the terms. Having some and
understanding what they mean.
Getting paid upfront in whole or in
part and retaining title to goods
all help if things go wrong. Credit
risk insurance may help, even
factoring your own invoices. Just
raising invoices at the right time
and not too early will all help cash
flow.
If it comes to it know the right
route to a solution when there is a
dispute, how to adjudicate, when you
can and when to use other methods
like Statutory Demands or Mediation
and Expert Determination.
Chris Scott is the Construction
Partner in the Commercial Team at
Taylors. |
