Worrying Times For Contractor Friend

[stonethecrows]

Very common. Small contractors end up putting all their eggs in one basket. They are fearful of rejecting more work from a client that owes money. They think that if they pull out altogether they will never see one penny. It's a viscous circle.

I always make sure I have at least 2 or 3 clients on the go at any one time.

And agree with Mr P here that it's the fear for some of losing every penny which often stops them pulling the plug altogether.

[migratory_bird]

Payment_Dates.ppt

I think it was originally 14 day payment. This has never worked.

You are free to set payment dates as frequently as you want under the HGCRA. Failing that it reverts to 28 days under the Scheme. (see attached for how each works).

The Contractor is required to make an assessment regardless of wether the subcontractor submits an application or not. They cannot withold payment without stating in writing why they are not paying.

Graph Source:

COTTAM, GUY (2002) “A users’ guide to Adjudication under the Scheme for Construction Contracts, including payment provisions”, Second Edition. Thomas Telford, London.

Payment_Dates.ppt

Edited May 1, 2008 by migratory_bird

[stonethecrows]

Payment_Dates.ppt

You are free to set payment dates as frequently as you want under the HGCRA. Failing that it reverts to 28 days under the Scheme. (see attached for how each works).

The Contractor is required to make an assessment regardless of wether the subcontractor submits an application or not. They cannot withold payment without stating in writing why they are not paying.

Graph Source:

COTTAM, GUY (2002) “A users’ guide to Adjudication under the Scheme for Construction Contracts, including payment provisions”, Second Edition. Thomas Telford, London.

Nay, nay and thrice nay-I don't know where you get your info but there HAS to be a construction contract in place and ordinarily it should contain standard terms which in themselves can work 'against the spirit of the Act' while still being perfectly legal. This 'reversion to 28 days' you are talking about is also completely rubbish in practice-where staged payments are agreed at commencement, many are actually based on certification which can be about as clear as mud especially when the certification dates haven't been specified.....assume makes an @ss out of u n me as they say and tough luck on those who don't know the right questions to ask and the right contractual facts to ascertain before tendering.

There are many MANY ways the big contractors can get around adhering to adjudication even supposing the smaller contractor knows how to go about instigating a dispute correctly and getting that far successfully.

While I appreciate you are probably trying to help the OPs m8, I can assure you the academic view of what the Act says and how things actually work in practice on the ground are 2 entirely different things and construction contract law is very complex, full of annoying little loopholes that the likes of say Barratt or Persims are all too familiar with to the cost of many many subbies to this day. If it were as straightforward as you suggest then we wouldnt even be having this discussion and no cases would get further than the adjucators if they were so all powerful as you seem to think and construction lawyers would be out of a job

Edited May 1, 2008 by stonethecrows

[Dubai]

I worked for a large organisation once and our Accounts Payable department were told to "look after anyone bigger than us", but anyone smaller (including Honest Jo the window cleaner, or Lovely Mable, the flower supplier) got screwed.

"When you do pay, pay as late as you can and if they chase you for payment, ask for terms" was the mantra. Our organisation wasn't even poor, just very, very tight fisted!! Poor buggers like the sole trader-type supplier etc had little choice as we were such a big local influence on the market, they had to take a risk on us.

It backfired on one of the finance managers once though, when he tried to change the supplier of taxi services to the organisation. He found that on each day after he terminated the contract, a different tyre on his car was slashed. It took his windscreen being smashed in to finally convince him that he had made a bad decision...

This is where it's all going. City slickers in sharp suits will play the little guy for a fool.... until he gets on the wrong end of an iron bar.

Violence is, unfortunately, the common denominator. Violence will, eventually, become a negotiating tool. Governments have employed it for years. Look at bush, blair, brown.... Iraq, Afghanistan, Lebanon. But it works both ways.... as Ms. Antoinette et al found out.

[Guest Mr Parry]

Payment_Dates.ppt

You are free to set payment dates as frequently as you want under the HGCRA. Failing that it reverts to 28 days under the Scheme. (see attached for how each works).

The Contractor is required to make an assessment regardless of wether the subcontractor submits an application or not. They cannot withold payment without stating in writing why they are not paying.

Graph Source:

COTTAM, GUY (2002) “A users’ guide to Adjudication under the Scheme for Construction Contracts, including payment provisions”, Second Edition. Thomas Telford, London.

Thanks for that. I used to use a section out of the Theft Act 1978, defines the offence of `making off without payment' . . . worked every time.

As soon is it looks like criminal, rather than civil law, most take notice.

[mrcutegurlzz]

awesome thread. I sort of enjoy bad payers as i get to call them everyday and piss them off. and i do. they soon get sick of me. you need to winge alot i think. but one trick i have is to offer, magnamonously, to send a courier around to collect the chaque. Seems to have a good effect. I think its because they dont want a stranger appearing to collect a cheque as it would be obvious they were bad payers. i always get paid, but i try to be flexible as alot of people are just passing the buck so to speak. they're being screwed so they screw the smaller guy. However, a whole year is a bit unbelievable.

there is a law that entitles the invoicer to collect interest on late payment, it doesn't even have to be in the terms, its a legal rigt, apparently. Also, invoices are not legally binding in the extent it you say, invoice to be paid by such and such a time. to enforce a payment date you need a contract, i think. even so, i think a year is a bit ridiculous, yoiu wold have thought they would get something in stages. unless it was all on account and they only worked 1 day a month etc.

i also work for a parish council. i put my invoice down and they said they didn't want to pay in one go, they wanted to pay monthly. the reason was that i might die.

[migratory_bird]

Nay, nay and thrice nay-I don't know where you get your info but there HAS to be a construction contract in place and ordinarily it should contain standard terms which in themselves can work 'against the spirit of the Act' while still being perfectly legal. This 'reversion to 28 days' you are talking about is also completely rubbish in practice-where staged payments are agreed at commencement, many are actually based on certification which can be about as clear as mud especially when the certification dates haven't been specified.....assume makes an @ss out of u n me as they say and tough luck on those who don't know the right questions to ask and the right contractual facts to ascertain before tendering.

There are many MANY ways the big contractors can get around adhering to adjudication even supposing the smaller contractor knows how to go about instigating a dispute correctly and getting that far successfully.

While I appreciate you are probably trying to help the OPs m8, I can assure you the academic view of what the Act says and how things actually work in practice on the ground are 2 entirely different things and construction contract law is very complex, full of annoying little loopholes that the likes of say Barratt or Persims are all too familiar with to the cost of many many subbies to this day. If it were as straightforward as you suggest then we wouldnt even be having this discussion and no cases would get further than the adjucators if they were so all powerful as you seem to think and construction lawyers would be out of a job

I agree, Contract Law can be very complicated, I by no means claim to be an expert, however I do have some training and experience with subcontracts, and you are right, what is supposed to happen, rarely ever does, but there needs to be some framework of law to work within else noone would ever get anywhere!

I suppose because Barrats etc, are thier own clients, they don't have the threat of LADS so can afford to hold subbies to ransom. For a Main Contractor who has to hit a target date else get hit with e.g. £50K/day Liquitated Damages, they soon get thier subbies paid in order to get the work finished. It is usually a disaster if the subbie walks off the job and costs a fortune to replace, as the new subbie takes time to find, and will normally cost much, much more than the previous subbie.

[Cinnamon]

What about a clause in the invoice that gives a 5% (or so) discount if the full sum is paid promptly? It might encourage some businesses to save money...

[stonethecrows]

I agree, Contract Law can be very complicated, I by no means claim to be an expert, however I do have some training and experience with subcontracts, and you are right, what is supposed to happen, rarely ever does, but there needs to be some framework of law to work within else noone would ever get anywhere!

I suppose because Barrats etc, are thier own clients, they don't have the threat of LADS so can afford to hold subbies to ransom. For a Main Contractor who has to hit a target date else get hit with e.g. £50K/day Liquitated Damages, they soon get thier subbies paid in order to get the work finished. It is usually a disaster if the subbie walks off the job and costs a fortune to replace, as the new subbie takes time to find, and will normally cost much, much more than the previous subbie.

This is the crux of how they get away with what they do-it's no mere accident that they operate in this way and FWIW I do think big housebumpers are far and away the worst culprits when it comes to this kind of sharp practice. Legal frameworks are indeed necessary but few could argue with the fact that since it's introduction the HGCRA was actually responsible for a huge increase in disputes at least 4 fold as a direct result which by and large could and would have been settled by informal negotiations previously or just not arisen at all. My sincerest hope is that this crash shafts them in the same way they attempt to shaft everybody else consumers included-value based contracting rather than competitive tendering should be normal practice by now but they are so backward in their thinking that they fail to see their inability to form good quality partnerships will be their undoing ~cue faint violins in background~ mehehe

[sun n sea]

The simple solution is to offer no credit.. period.

My company is a manufacturing company- not a bank, factoring agent or investor in your business. You want stuff made I'll have the readies from you before I even order raw materials.

Most small companies are too scared to tell customers how it's going to happen. I have dealt with hundreds of customers- from one man bands to multi nationals- everyone gets treated the same- pay on a pro forma and we'll do business- flannel me off with your corporate policy and I'll tell you my corporate policy- pay on a pro forma.

The best way to put off the scammers and invoice avoiders is to ask them to setup a credit account with you- you then ask them for bank references, trade references and a personal guarantee on the account- surprisingly the number of people who take up a credit account is virtually nil.

I've dealt with the construction industry many times- with all their JCT's and retention guff. I always explain that these construction contracts are all well and good but they don't apply- if you want manufacturing work carried out the terms are set by me and you agree to my contract terms.

A bullish approach can cause you to lose a few potential customers, but a trusting approach will lose you a lot of money. You can earn sod all sitting in the back garden.

[Brian Potter]

This is the crux of how they get away with what they do-it's no mere accident that they operate in this way and FWIW I do think big housebumpers are far and away the worst culprits when it comes to this kind of sharp practice. Legal frameworks are indeed necessary but few could argue with the fact that since it's introduction the HGCRA was actually responsible for a huge increase in disputes at least 4 fold as a direct result which by and large could and would have been settled by informal negotiations previously or just not arisen at all. My sincerest hope is that this crash shafts them in the same way they attempt to shaft everybody else consumers included-value based contracting rather than competitive tendering should be normal practice by now but they are so backward in their thinking that they fail to see their inability to form good quality partnerships will be their undoing ~cue faint violins in background~ mehehe

Stonethecrows.

Are you a QS?

Its pretty unusual to have construction industry professionals on here.

Most people on here think House builders/developers are the same as main contractors.

i am a consultant in the industry and getting paid can be a work of art - as you clearly know.

[stonethecrows]

Stonethecrows.

Are you a QS?

Its pretty unusual to have construction industry professionals on here.

Most people on here think House builders/developers are the same as main contractors.

i am a consultant in the industry and getting paid can be a work of art - as you clearly know.

I think a fair few QSs would argue that they aren't QSs any more

Started out as QS but got railroaded into buying-probably the lesser evil if you really can't bare to leave ALL your morals at the door

Agreed, it's not clear to a lot of folk how big builders operate and Ive met many people who still believe they employ their own brickies and stuff-bless

The trouble I see ahead is that much as I hate these total to$$pots and would love to see them in the gutter where they so rightly deserve to be, they'll take a lot of contractors big and small down with them

[Brian Potter]

I do work for developers and main contractors in the north-west. Banks are pulling the plug on schemes left and right.

They will bankrupt a lot of subbies/consultants in the process. I am owed a fair sum by one such developer. It would not send me under if I didnt get paid but I know some subbies who are owed £500K.

It really is starting to look bad.

[Blue Peter]

Agreed, it's not clear to a lot of folk how big builders operate and Ive met many people who still believe they employ their own brickies and stuff-bless

Can you write a sentence or two which explains it, then, since I haven't a clue,

Peter.

[Son of Taeper]

It happens!

How the hell could somebody work for a year and not be paid...

Reminds me of a contract I had in the early 90's. The woman in accounts had a strong dislike for contractors and it showed. She would often delay payment for weeks on end which wasn't too big a problem as we were on a very good hourly rate and had vast overtime available to boot. I was working 84 hours a week and frankly didn't have time to spend it. We had two meals a day provided free and I had savings from my last contract to tide me over. It got to the stage where I was owed about 12 weeks pay and it sort of came out in conversation by accident as I was in the pub with my manager one Saturday lunchtime. He was horrified and come Monday morning I overheard him on the phone to accounts demanding she pay me immediately. He put the phone down and told me to go to accounts and pick up the money. Her face was a picture as she handed over a cheque for £12,000. I thought her face was going to crack wide open when I thanked her and apologised for my managers behaviour saying "I wasn't in a rush for the money, I've still got loads in the bank""

[Methinkshe]

When we ran our own business - manufacture, supply, maintenance and repair of industrial doors - all our quotations required 50% with order and balance on completion (or 30 days for those who had accounts). At least we covered our costs. Anyone who objected to the 50% up front didn't get the service - full stop. It worked for us - on the whole, although we did on a couple of occasions lose the 50% balance due on completion when a firm went bankrupt, but at least we'd covered our costs. But that was ten years ago. Maybe things have changed - I don't know.

[Sheer Heart Attack]

The simple solution is to offer no credit.. period.

Agreed. We always demand payment upfront for our services.

When questioned about it, we use two lines. First, it's our business so we set the terms of payment. Second, we can't commit any of our resources over to you until you commit your cash and your signature over to us.

We maybe lose two or three per hundred customers, but it's kept us in business all these years.

For the guys not getting paid for ridiculous levels of time, you have my sympathy. Worry over money is a peculiar and cruel form of stress.

[symo]

The generally accepted contractual way of charging interest is at base+2%. I had a Russian customer whom had paid 50% of the design and build cost and 40% was due before delivery and the final 10% at the end of commissioning. He didn't pay the £3mil so we charged him interest at base +2% until he stated he could not pay anything as his client had dropped out.

[Its time to buy]

Just been back - would have continued the thread if it were not fo a big row yesterday evening

It is true - most of the money was used in buying the raw materials. I m waiting to see if these guys pay up. Its not good for my friend who runs their own landscaping business and this is the main [i think only] customer. Sorry dont know ant more details - sensitive subject as it is.

Edited May 1, 2008 by notanewmember

[buzzardo]

Suggestion - issue a winding up order against them.

I used to run my own small Consulting company, and at one point we were owed £50K for 190 days by a large computer company. They will obviously remain nameless, but let's just say their name would ring a bell (in cockney slang terms - narmean?)

When we'd tried everything we could think of to get the cash out of them, one of my neighbours (Head of Credit Control for a Big Four Accountancy company,) sorted it out in 48 hours. She'd allegedly had the same problem with them many times, if I remember rightly, with amounts into six figures, and said it was simple. She just issued a winding up order against the company, and had it on the EMEA Finance Director's desk the next day. Yup, apparently under EU law if you're owed cash you can close them down!!

I thought she was winding ME up, but no - the following day a motorbike courier turned up at the office, with a cheque for the full amount INCLUDING INTEREST FOR EVERY DAY IT WAS LATE (that's another one to try, you'll find the details on either the CAB or HMRC website,) and the debt was settled.

Interestingly, we continued to trade with them, as our key contact was really embarrassed that their Finance people had p1ssed us around so much (he knew we depended on our cashflow, and thought what they were doing was immoral as well.) I suspect the Finance Director gave them a good kicking too, as a winding up order for a multi-billion pound global corporation, over a bill for a five figure sum, tends to be brought to the attention of the CEO and Chairman, because it's as serious as it is plain ludicrous....

Strangely we never had another invoice paid late in all the time we worked for them.

Good luck, and don't take any sh!t from them....

B

[Its time to buy]

Suggestion - issue a winding up order against them.

B

Thanks, will mention that idea. I m no accountant or have any legal background so will see.

[Pindar]

Not really-'specially in the case of housebuilders where (at least until very recently lol) as often as not the end (and highly composite) product has been sold and is inhabited by an innocent (if at little gullible) party. There's also another thread pointing out that even if it's your unpaid for work you can still be done for criminal damage.

Besides which it would do little more than cause problems for the contractor seeking vengeance & backfire in a big way ensuring you never get on another decent sized job for several years once the news has worked it's way through the grapevine, which isn't to say it never happens-it's not like you can retrieve several thousands of pounds worth of labour is it in the same way as if youve sold someone a car & they don't pay so you take it back.

As I said before, most of the main contract documentation in use these days does provide means of arbitration but it can be a lengthy and difficult process to get your dough especially if you don't have the staff knowledgable or experienced enough to know how the system works and play it to their advantage.....if even the big companies are struggling to find enough decent QSs (one other part of why payments can be held up) what chance does a small timer stand? Tradesmen are just that and therefore at a distinct disadvantage if one of the big boys decides for some arbitrary (or not) reason to pull a fast one.

Now-back to OP, just for the sake of playing devil's advocate for a moment...in my experience (and especially in relation to disputes) there are always at least 3 sides to every story. Clients can be sh1t at paying but especially during the boom times cowboy contractors are rife too let's not forget. You don't necessarily know the FULL story of why payments are not forthcoming-for example your m8 could have stuck a dozer through several thousand pounds worth of someone else's brickwork or could have made numerous errors he has failed to rectify which could have resulted in retention monies not being released or he could even have done his own work perfectly well but in such a way as it caused some other part of the project to be delayed which usually costs someone somewhere penalties which generally doesn't go down too well. Or he could just have got his tender hopelessly wrong (this is a major MAJOR problem for a lot of contractors) and be hoping they'll make up the extra he thinks he's done on day rate (seldom happens if they've got you contractually bound)-as prev pointed out good QSs are thin on the ground and not all tradesmen are the best at measuring and quoting from drawings which is why they're tradesmen and not QSs. These are just some examples off the top of my head other than being skint, but there could be many reasons for payment not materialising....you get the general idea though

From what you've said it's a lot more complex than first meets the eye. There also seems to be an element of "supermarkets vs the farmers syndrome" - i.e. smaller independent businesses whose business is soley reliant on one customer - big customers who can easily pull the plug on a whim and go elsewhere. It's a shame there is not stronger enforcement of contract law in these matters, though, as in all monopoly capitalist systems, you find that the large enterprises dictate the terms to all their (often much smaller) suppliers. The company I work for is in a different industry completely but I see a similar thing happen in certain markets.