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Getting Paid - Sometimes You Just Have to Help Yourself

» Posted on: 8 August 2011
» Posted By: Chris Scott

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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.

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