Finding work in the building industry can be a tough battle. You can spend a lot of time and effort trying to secure a contract, only to lose out to a competitor .
But if you think that’s disappointing, imagine getting the job, doing all the work, and then finding out the builder can’t pay you because it’s insolvent.
Unfortunately, many subcontractors and suppliers are now facing this situation thanks to a recent spate of insolvencies with major builders. They’re now out of pocket, which could well lead to instability or even insolvency in their own businesses, and think of the impact it would be having on their personal lives.
We don’t like seeing anyone go through this predicament, but it happens all too often. So we’ve put together two blog posts to help you:
- reduce the risks of working for a builder in financial trouble
- improve your chances of being paid if you do.
And if you need help with any of these steps, don’t hesitate to contact your accountant, your lawyer, or the team here at Cactus Consulting.
Before you start working for the client
As part of your preparations to secure that work contract, you should also make sure you’re prepared for it.
Decide how much you’re willing to commit
You need to work out how much of your business you’re willing to devote to one client. Yes, a bigger credit account may improve your chances of getting the gig and big promises of big profit. But if there’s a problem and you don’t get paid, would your business survive?
Make sure your credit terms are rock solid
Give yourself some extra protection by updating your credit terms to include:
- Personal guarantees.
- Charging clauses that can make you a secured creditor of the company and director by giving you an equitable charge and the right to lodge caveats over properties they own (and potentially deal with those properties).
- ‘Retention of Title’ clauses for any materials you supply. Make sure they include ‘all monies’ terms so you retain title in any goods supplied until all invoices are paid in full, and have the right to recover your goods if they aren’t paid for. The clauses should also give you a ‘security interest’, which can and must be registered on the Personal Property Securities Register (PPSR).
Do a credit check
Credit reporting agencies such as CreditorWatch provide a platform for suppliers to report payment defaults, making it a great way to avoid potential non-payers. But while you can check and monitor all customer accounts, it may be more practical to restrict your service to customers over a certain credit limit.
Look up the client’s licence history
Log on to the Queensland Building and Construction Commission (QBCC) website, and perform a search on the client’s licence. While the site’s licence history isn’t conclusive, it can tell you if the client:
- has ever had their licence suspended
- was ever given a directive to rectify work
- received any demerit points for judgments obtained against them
- has been involved in non-payment.
Talk to other subbies
Are there any subcontractors or suppliers already working on the site? Are they getting paid on time and in full? If not, or they’re having other issues, there’s a good chance you’ll have the same problems. So talk to them, and see how they’re faring.
Get credit insurance
Would you feel more confident about taking on bigger jobs if you had protection against the builder going into liquidation? Credit insurance can give you that protection by limiting the risk of non-payment if your client goes bust.
Once you notify them of a claim, the insurers will work fast to pay your debt. And credit insurance brokers such as Terry Watson of Watson Trade Credit , Travis Dix of NCI or Nathan Wrobel of Acquire Trade Credit can help you set up and manage your portfolio.
Quote your jobs right
While it’s tempting to cut your price to get the work, eventually you’ll have to find the money to fill the gap, which could have you chasing your tail. There’s no point growing if there’s no profit in the job.
Consider a surety bond facility
Retention monies are much better off in your pocket. A surety bond facility is an alternative to bank guarantees with the benefit of generally being unsecured, meaning your assets aren’t tied up as security. When you hand over surety bonds to the builder at the commencement of a job, they have the comfort of paying your invoices in full and not withholding retentions. For further information, speak to specialist surety broker Shane Stewart of Bellrock Construction Surety.
Once the work’s underway
Congratulations, you got the job. But that doesn’t mean you’re in the clear. Here are a couple of points to consider.
Get written confirmation of any variations before you do them
When there’s a job to do everyone wants to get stuck in, which means variations are often done before they’re approved. And that leads to payment issues down the track.
Ideally you should have a formal variation approval system. But if you don’t, make sure you at least email the client or builder about the variation (including work specs and agreed price), and wait for written confirmation before starting the work.
Consider stopping work if you’re not being paid
Subbies often hear statements such as “Just finish the job and we’ll pay you” and “We’ll pay you in full at the end of next month”. Unfortunately, in a lot cases they’re just empty promises.
If you aren’t being paid, think about whether you should keep working. (Make sure you refer to your contractual requirements.) There’s nothing worse than suspecting something is wrong, but continuing to do what ultimately becomes unpaid work.
When the job’s done
You’ve finished the work, and it’s time to wrap things up and move on to the next project. But before you head off there are a couple of things you need to do.
Issue the invoice for your work
Paperwork is never fun. But there’s no point doing the work if you don’t get paid for it. And if you’re dealing directly with the client, give them the option of paying by credit or debit card. (Apps such as ServiceM8, Bridge and Invoice2Go make it easy to provide these options.)
Make sure it’s issued as a BCIPA payment claim
For subcontractors and to a lesser degree suppliers, by issuing your invoice as a payment claim, you can use the Building and Construction Industry Payments Act (BCIPA) to help you settle any disputes which may arise with the builder. The BCIPA is often cited as the quickest way to ensure payment for subcontractors, and the QBCC provides a useful step-by-step guide to help you understand the process.
By taking these steps, you should be able to reduce the risk of taking on work you won’t be paid for. Unfortunately, we can’t guarantee it will never happen, which is why our second blog post talks about what to do when you find yourself in that situation.
In the meantime, if you’d like help deciding what’s right for your business, you’d like to discuss payment issues you’re having with builders or you’d like information about specialist building lawyers or accountants, don’t hesitate to get in touch with me:
- via the Cactus Consulting website
- by email (firstname.lastname@example.org)
- by phone (1300 422 288).