February 25, 2015

7 in 10 builders ‘forced to write off bad debt’

More than 70 per cent of small construction businesses have been forced to write off debt over the last three years, according to a new report.

Planning for Growth, published on 19 January by Bibby Financial Services and management consultants the Vinden Partnership, described late payments as one of the biggest problems facing subcontractors and small construction firms.

It said: “Late payment problems have a massive impact on the construction sector, with the issue a particular problem for subcontractors undertaking work on multi-year projects with high material and labour requirements.”

According to the report’s research, carried out with more than 200 small construction businesses, 70.5 per cent had suffered bad debt over the last three years, with the average sum written off standing at £30,465. More than half (59 per cent) also said they did not always receive the amount for which they had invoiced.

The problems caused by cash flow issues were highlighted on 4 February, when West Bromwich-based Anglo Holt Construction called in administrators. Eight live contracts had been suspended and 52 out of 67 employees were made redundant.

Administrators Baker Tilly said “substantial contract losses” over the past 18 months had resulted in a shortfall in working capital, which meant the company could not pay suppliers and sub-contractors.

At Palmers, our expertise in construction law includes all aspects of contracts, including clauses relating to payment issues, such as progress payments, retention, time for payment and final payment.

It is often forgotten that for many types of construction operations there is a mechanism provided for by the Housing Grants, Construction and Regeneration Act 1996 (as amended) to obtain swift payment by way of adjudication.

The Act was introduced to help sub-contractors who were struggling to obtain payment on large projects by the introduction of a “pay now, argue later” mechanism for contracts covered by the Act. Adjudication is usually a 28-day process and is very effective in obtaining swift payment where no ‘pay less’ notice has been issued by the contractor. Whilst legal costs are not recoverable in adjudication, Palmers runs fixed fee adjudications for all debts under £100,000. For more information, please contact Adam Davis.

There are, of course, other alternatives to collecting debt and at Palmers, we can advise construction companies on all aspects of commercial debt recovery, including deciding which procedure is most likely to result in the recovery of the money owed. Pursuing money owed needs to deliver a return on the investment of legal action, so we offer a cost-effective fixed fee appointment of up to one hour at a cost of £100 + VAT to assess the case and advise on options. For more information, please contact Adam Davis.  

If your business is severely struggling with debt and potentially close to insolvency then, please contact Andrew Skinner, our expert in insolvency-related matters.