Business Law: Sarah Duncan on minimising the risk of non-payment

Sarah Duncan of Atwells.

Sarah Duncan of Atwells. - Credit: Archant

The recent demise into insolvency of G B Solutions Ltd, a major contractor which owed two subcontractors alone £230,000, should act as a reminder to all subcontractors to manage their cash flow during the course of a project.

In the event of insolvency even those subcontractors who have insurance to cover any due, but unpaid, applications for payment on projects would not be able to recover sums not yet certified or indeed the all-important retention. So, what can subcontractors do in these uncertain economic times to minimise risk of non-payment? Following a few simple steps as set out below can help.

: : Make sure you request a copy of the contract you are expected to work to and any associated documents and review it carefully. Do you understand the procedure for applying for additional works? Are you clear what is or is not included in the price? Are you happy with the retention percentage? If you are unclear about any of these issues at the start, or need help in negotiating contract terms contact a construction solicitor now to make sure that your issues are considered from the outset

: : As soon as the contract allows you to, apply for payment. Ensure that you are aware of the date by which you should expect a response or whether you are entitled to push for payment of the full sum applied for. Diarise any due dates and keep chasing for payment after they have been missed. If there is a pattern of non-payment, consider taking stronger enforcement action to recover amounts due and consult your legal adviser to discuss these.

: : Keep on top of the due date for practical completion. Remember that if tenants or owners have moved into any part of the building it is “deemed” practically complete and you can apply for release of part of the retention percentage. At the outset of the project, make a note of the defects liability period and chase at the end of this for your final tranche of payment.

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Remember, cash is king, and making an effort to keep on top of your cash flow will keep your business profitable.

Sarah Duncan is a specialist construction solicitor with Attwells.

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