The construction industry in the United Kingdom in particular has a hierarchy that exists because of the nature of contracting where there is a Main Contractor (often a FTSE 100 or 250 companies) who then employs sub contractors. These sub contractors may themselves further sub contract work and enter into supply agreements to fulfil their obligations under their contract but suffer what is known as “subby bashing” in the industry.
An example of this is Main Contractors will hoard cash at their financial year end to boost their “Cash at Bank” disclosure. How will they do this? By not paying their supply chain on time of course.
Now of course they all claim to abide by industry norms, such as Network Rail’s Fare Pay Charter, but you never find a company admitting they make their supply chain wait for monies they are legally due.
Often because these companies are huge organisations with various divisions that share their Payment function as a Head office activity the person that actually processes your payment will be so far removed and in truth be ambivalent if you are paid in accordance with your contract.
As the world gets smaller through technology advances, it is also possible for small companies to punch well above their weight when it comes to asserting their rights.
If you are a specialist subcontractor in the Construction or Engineering Industry, Ansell Murray Limited is a commercial partner to obtain advice, resources and expertise to overcome your commercial / business problems with support across the spectrum of commercial activities.
While those that caused the economic chaos a decade ago have gone unpunished and again left to create a further economic meltdown again in the future out here in the real world margins are slight and it only takes something minor to go wrong such as delays or errors for the Sub contractor to start losing money on a project. If unchecked this can cause the Sub contractor to even go out of business. This effectively is what “subby bashing” is. Over the last 20 years legislation enacted has sought to curb the excesses of it. But the legislation is never written in such a way as to outlaw it. For example a default Payment regime is defined in the most recent Construction act, but this can be varied by agreement.
Sadly this is where smaller companies let themselves and their competition down as they will accept onerous terms simply to win the work, such as stretching out payment to up to 90 days and then suffering other unethical behaviours where to recover their margins Main Contractors will withhold payment by:
- Invoking onerous contract terms
- Creating a contra charge account and seeking to Set Off spurious and often unsubstantiated costs
- Failure to release retention monies
- Seeking to hold retention on Sub Contractors when the Employer is not holding retention
- Under valuing payment certificates
- Making false or illegal damages claims
This all leads up to the Main Contractor holding as much of the Sub Contractors monies as possible for the “Final Account” negotiation. This is when the Main Contactor ensures he maintains his margin and the Sub Contract in effect has to accept whatever he is offered, irrespective of whether the project will be profitable or not for his business.
This is because the Sub contractor has a choice, accept what he is offered and try to make up the monies on the next project or seek to enforce his rights through Adjudication of if necessary the courts. Many Sub Contractors are afraid of Alternative Dispute Resolution (ADR) because they do not understand it. The various ADR mechanisms have been discussed before. See: https://ansellmurray.wordpress.com/category/alternative-dispute-resolution/
Sub contractors have this false belief that they are powerless to improve their situation, but this is not the case. Ansell Murray Limited can be your “Commercial Director” on a call off basis. Think of us as a Pay as you go service. This can involve the following timeframes:
- Pre contract advice / support
- Contract period advice / support
- Post contract advice / support
In the next post we will examine these in more detail.