Streetwise Guide to Cashflow
For Specialist Contractors Maintaining Cash Flow is Vital for Survival and a Daily Battle.
Specialist Contractors are finding it much more difficult to obtain credit or borrow money, and are being squeezed by banks and suppliers alike. Worst still you are probably being paid late or paid far less than you are owed. So maintaining cash flow becomes a real challenge.
Our brief guide sets out a few ways that you can use as a Specialist Contractor, to avoid late payment, non-payment or under payment and as cash flow is the vital life blood of your business you need to act fast when it starts to dry up.
Here are a few ways you can use to avoid non-payment or under payment.
Check the Contract!
Make sure that every contract you enter into sets out the essential terms of the agreement including the scope, price and a programme for the works-and most important of all check that it is clear about the payment terms!
Always try to reach agreement on all terms, but especially payment, before work starts rather than later when problems may have arisen.
It may seem an odd thing to check at the outset, when things are probably going well, but you need to be clear that the means of dispute resolution hasn’t been drafted to make resolution difficult or prohibitively costly.
It may sound obvious, but you also need to make sure you have a copy of the contract – all of it!
Applications for Payment
Whatever the payment terms of your contract, it is vital that you get your applications in on time and that you claim everything you are entitled to.
You should include all entitlements under the contract including, variations and additional costs or loss and expense. You should also include all materials delivered to site, and where your contract allows you to, materials held off-site as well.
You should also maintain a good line of communication between you and whoever is responsible for certifying payment. Get straight on to any issues arising and iron out small difficulties before they develop into bigger problems.
Statutory Protection That May Help You Get Paid
If your contract is subject to the Housing Grants Construction and Regeneration Act 1996 (the Construction Act) this will give you some protection. The Act sets out the minimum requirements that a construction contract must include with regard to payment.
But beware as not all contracts are subject to the Act!
If the Act applies and your contract doesn’t comply with the provisions of the Act, then the terms of the Scheme for Construction Contracts are implied into the contract between the parties.
The Act also provides for the giving of notices by the paying party.
Section 110 (2) of the Act requires the paying party to give a notice specifying the amount of the payment and the basis upon which the amount of the payment was calculated. This is essential, as it provides you with details of the work that is being paid for and equally importantly, that which is not being paid for.
Section 111 of the Act is also sets out the minimum requirements for the giving of a Notice of Withholding. To be effective, the Notice must state the amount to be withheld and the reason or reasons for the withholding.
Paid When Paid
The practice of pay when paid used to be commonplace in the construction and engineering industry, but this has now been addressed in the Act. Albeit that you still need to be cautious!
Section 113 of the Act makes “ineffective”, any provision which makes payment conditional on the payer receiving payment from a third party. The only exception to this rule is where the third party from whom payment is due becomes insolvent.
This is where you need to watch out, because if you don’t know how financially secure the third party is, you could be the one not getting paid!
With this in mind, checks should be carried out the company you are directly in contract with, and any party or parties further up the contractual chain.
By virtue of Section 112 of the Act, you now have a very powerful weapon to use in the event of non-payment.
You have the right to suspend performance when the money due under a construction contract is not paid in full by the final date for payment and no effective notice of withholding has been given.
You are entitled to suspend performance for as long as payment remains outstanding.
But beware, like all powerful weapons this one has to be used carefully, and you would be well advised to take advice before suspending performance.
There is no doubt that when done properly, adjudication (and sometimes just the threat of adjudication) is a fast and cost-effective way of getting paid.
The decision to refer a matter to adjudication should not be taken lightly or in the absence of proper consideration of all the facts. In particular you need to check the terms of the contract in respect of adjudication to make sure there isn’t a provision requiring you to pay all the costs!