Late paying contractors
Last month the UK Government announced that main contractors with poor payment practices would be stopped from bidding on Government projects, in order to “level the playing field” for sub-contractors.
Despite the statutory provisions of the HGCRA and the LDEDCA, late payment is still a big problem in the industry, and it arrives from two issues.
The first is that the statutory provision is not enforced. The HGCRA outlawed “pay when paid” clauses in contracts in a bid to improve cashflow down the chain, and the LDEDCA also outlawed “pay when certified” to plug the loophole commonly exploited by main contractors. That’s great, but whilst the statutory provisions exclude the contracts from including such clauses, main contractors just use other methods to safeguard their own cashflow. Either they impose ridiculous payment times, or they simply don’t pay on the contractual deadlines. We see contracts with 120-day payment terms, and we advise subbies whose contracts might say 14 days but who just don’t get paid for 60 or 90 days. The sub-contractors simply don’t have the commercial clout to negotiate better terms, or the financial stability to risk taking action against an important customer. Adjudication is not inexpensive nor without its problems, and litigation is scary. Suspending the sub-contract works for non-payment requires both certainty of contractual position and the ability to withstand a period of doing nothing. Small sub-contractors are rarely able to take such courses of action, even if they are aware that they could.
The second is the sub-contracts themselves. It may be due to poor comprehension of how contracts work, or it may be deliberate in some cases, but all too often main contractors will send out sub-contract terms that are such a mess that the only way of ascertaining what the sub-contractors rights actually are is to go to court. Incorporation by reference of undisclosed main contract terms is common, as is incorporation of bespoke – and unbelievably onerous - terms, emails, tenders, and minutes, all of which conflict with each other.
Whatever the reasons for late payment, most culprits are not household names likely to be interested in infrastructure projects, so being banned from the lists is going to have no effect.
For more information on late paying contractors, please contact Derryn Rolfe, or you can give us a call on 0345 070 6000.