The current affairs of Carillion has brought doubt into the many minds of those in the construction industry. “Whats going to happen? Are we going to get paid? How can we prevent this from ever happening to us?”
So what happened to Carillion?
Well it is likely from taking on too many risky contracts that proved unprofitable and they also faced payment delays with some contracts.
Carillion are just one of many huge construction giants out there that subcontractors feel necessary to work with to maintain revenue, cashflow and to keep work flowing in. However, these main contractors that work with JCT or other large contracts that are hundreds of pages long, expect you to agree to them without completely understanding what you’re signing up to. This is the first error, you should be clear what you are signing up to and what could go wrong should you be tied into these contracts. Do not sign these without reading through them or obtaining legal advice!
For example SO many of the Carillion already signed contracts are on 120 or more day payment terms for their subbies, that is less frequent than once a quarter! These subbies will now risk not being paid.
Even without the mess Carillion are in these terms are unworkable, by just reading and negotiating your contract you can reduce this massive risk and your time waiting for payments. Instead you should agree terms for part payment upfront, no deliveries to site without payment for the materials, and most certainly remove the 120 day payment terms after the works have been completed.
‘Upon the signature of this agreement, title of the goods passes to the main contractor’ this is a clause we found in a recent contract review.. Can you really afford to agree it? How are you getting paid for goods you no longer own?
You should agree that title passes upon payment of goods rather than upon delivery to site, or any other arbitrary times. You should agree your defects liability period to begin once your works are complete rather than practical completion so that your retention’s are paid sooner. All these methods limit your liability and lessen the amounts and time you are waiting to be paid.
If the Carillion Crisis happened again, what would you do when you are waiting for payments you can’t afford not to receive? What have you done differently to protect yourself this time?
Contracts, especially in the construction industry, are all trying to limit and shift liability and onus to others especially the little man, this done through payment terms and defects liabilities, but also in hundreds of other ways.
If you are sent these kind of contracts and do not understand them or can’t spot the common pitfalls to the contracts. Get us to review and renegotiate on your behalf, as a couple of hours with us could be the difference between you getting paid or not.
This is what we can do: After a client of ours gave us a Carillion contract with terrible payment terms, we had negotiated so that our client had 70% of the contract value paid up front, which has paid for the goods which are in storage as Carillion’s assets, however because they had not been installed, our client has lost nothing from them going under, all due to renegotiating the payment terms of contract.
Want to protect yourself from unfair terms, call BEB for a free consultation on 01604 217635 or visit www.bebconsultancy.co.uk