While a great deal of noise has been made about retentions and late payments in recent months, it seems not a lot has changed. Despite promises to the contrary, subcontractors are still feeling the pressure of balancing cash flows. With the biggest main contractors reporting slim to no profits the chances of them making good on promises to pay on time are wishful at best. After all they have their own cash flows to worry about. Should government be stepping in with legislation to protect the industry?
Actually legislation already exists – The Construction Act which sets out rights for companies within the construction supply chain, even detailing late payments and rights to suspend work for non-payment amongst others. While it was created for subcontractors at a time when they were most vulnerable it seems to have little impact on the industry and subsequently some question whether it’s really fit for purpose?
What will protect the industry?
If legislation is having little impact on protecting the industry what needs to change? Does the Act need to be rewritten to include measures with which subcontractors can enforce their rights? Do main contractors need to be brought to task by industry associations and be held accountable for their late payment practices? Should subcontractors and companies in the supply chain take on the responsibility to reduce their exposure to risk?
It’s all well and good blaming market pressures and industry factors for cash flow issues, and these are real issues, there’s no doubt about that. But in the absence of enforceable legislation and with the current economic strain showing little sign of abating, what alternate options are available?
Contracts are key
It’s been suggested that one of the best ways to mitigate risk is to ensure that clear contracts are put in place. Ones that have terms of payment clearly outlined including a form of recourse if the contract terms are not met. Too often contracts are flimsy, not even detailing the basis on which the parties are contracting and terms and conditions are vague or outdated. However, it’s this ambiguity that creates loopholes which are then used as an excuse for late or non-payment.
Ultimately subcontractors should be protecting themselves against risk by putting clear contracts in place. Rather than a vague promise of getting paid, they’ll have a stronger foundation on which to take on projects.