Over the years I have had hundreds of general conversations with subcontractors looking to explore options in their business, including those seeking to recover monies owed. These conversations are as frequent today as at any time in the past. They continue to be harrowing in their nature and from my perspective reflect the reality that the industry has a very long journey ahead of it before being in a position to claim success in addressing this significant issue.
These conversations involve all types of subcontractors, ranging from small family businesses to large specialists trades.
As I have stated on many occasions in previous articles, I am not a lawyer so I do not give legal advice. However given my extensive background and experience working for the Industry regulator for 22 years, I do have a comprehensive understanding of different practical options available to subcontractors to explore in this regard.
This article is not based on any one particular conversation I have had with a subcontractor. Rather it is a ‘conversation’ I have with a fictitious subcontractor who reflects the key traits and characteristics of these real subcontractors.
This fictitious subcontractor employs a number of persons and enjoys a great reputation for delivering quality outcomes. However, they are being denied a progress payment of several hundred thousand dollars by a builder because of a major dispute emerging over the additional time taken for them to achieve practical completion (PC).
It is my experience that in payment disputes of a substantial nature the number one contentious issue between the parties is the time taken to achieve PC.
Because time represents money to both the builder and subcontractor. It is that simple.
Payment disputes of this nature also usually involve disagreements over:
- scope of works;
- EOTs; and
- liquidated damages.
It is my observation that, all of these things have their own specific contractual requirements and obligations that a subcontractor must have a good understanding of.
These types of payment disputes are very complex with lots of what I call contractual ‘grey’ for the parties to explore. I invite you to jump on the Adjudication Registry website and randomly select some recently published decisions. It will not take you long to find a decision where all these factors are involved in a substantial payment dispute between a subcontractor and builder.
Furthermore, as will also be evident in a lot of adjudication decisions where time taken to achieve PC is the central issue in dispute, for subcontractors the administration of a contract with a builder can prove to be extremely challenging. In my view, the main reason for this is the number of payment requirements a subcontractor has to demonstrate adherence to before being in a position to claim a progress payment.
Warning to subcontractors
If I had to settle on one contractual warning to subcontractors in their dealings with builders it is to avoid as much as possible hiding your head in the sand when it comes to delay. Get your ducks in a row and deal with it head-on. If a subcontractor finds delay disagreements with builders happening on a regular basis then I consider this to be a major threat to the long term viability and profitability of their business.
It has been my experience that subcontractors who operate their business with a strong focus on understanding the importance of time in contracts will also usually adequately scope out the contracted works.
Such subcontractors appreciate the importance of gaining a clear and unequivocal understanding of the builder’s requirements when formulating the contract. By adopting such an approach it has been my experience that the subcontractor will significantly reduce the possibility of payment disputes arising during the course of the contract.
I have seen in the past that that 100% adherence and compliance with the requirements and obligations imposed on subcontractors under some contracts to be an almost impossible task for even the most astute subcontractors.
Why do subcontractors sign such contracts, without amendments?
Answer. The fear of missing out on work, particularly in challenging economic times.
I have heard many people give casual, off-handed responses to subcontractors signing such contracts. ‘It is simple, subcontractors should refuse to sign them’, they say. My response to these people is for them to spend some time working in a subcontractor’s business so as to gain an appreciation of all the daily challenges they face. A little empathy is required by those of us who are not subcontractors trying to run a business in 2019.
However, having said that I absolutely believe that all subcontractors need to be able to identify inappropriate clauses and seek to negotiate changes to them in all simple and standard contracts. Whether they are ultimately successful in this regard, that is an entirely different matter. Even if they are totally unsuccessful and still decide to proceed and sign the contract, at least they are fully aware of all the risks.
In complex and/or substantial contracts, subcontractors will require assistance from experienced and highly skilled lawyers like we have at Helix Legal.
The bottom line is all contracts, in my opinion, should be fair and balanced. If they are not there is a real likelihood of the parties having regular payment disputes during the course of the contract.
Every time a subcontractor is unfairly denied payment by a builder there is pressure on governments to do something to address this significant industry issue. This means decent, ethical and honest builders will be forced to comply with new laws or requirements designed to weed out builders in the industry who are rogues at worst, or at best prone to deliberately delaying of payments to subcontractors.
There are no winners in any payment disputes between builders and subcontractors. It’s time the industry at large recognises this fact and takes responsibility for bringing about positive change in this regard or governments will continue to apply the legislative hammer on ALL builders.