Pay-when-paid rule bulldozing business
Subcontractors on receiving end
The “pay when paid” principle is detrimental to construction subcontractors as it could see the closure of their businesses.
According to the Master Builders Association North (MBA North) – the nonpayment of contractors remains a key barrier to a healthy construction industry.
MBA North responded to Consumer Line after it published the plight of subcontractor Shadrack Mashambe on January 22. He has not been paid more than R100 000 for work completed four years ago.
Enwee Human, legal and contractual manager at MBA North, said MBA was calling on all players within the industry to adopt fair payment practices to avoid reputational damage and to also promote a collaborative spirit.
“Margins in the construction industry are paper-thin, as we all know. It’s a serious concern for small contractors when they are not paid timeously because they rely so heavily on cash flow,” said Human.
He added that many risk going out of business altogether if their cash flow was interrupted and, as a result, a number of contractors were refusing to work with principal contractors who have a bad reputation for nonpayment.
Human said according to the Construction Industry Development Board (CIDB), 60% of subcontractors have experienced delayed payments.
MBA have received umpteen disputes, Human said, which were related to nonpayment from principal contractors between 2016 and 2017.
He said one of the major drivers of delayed payment was the “pay when paid” principle, which is extremely unpopular with subcontractors.
Human said the subcontractor’s contract was with the main contractor, and the subcontractor cannot be expected to absorb any delays or shortfalls in payment.
Neil Duncan, a director at Kelvin Bates Albert Carpets and Flooring, said another reason for delayed payments was the proliferation of amendments to standard building contracts by clients and main contractors.
In the process, clauses providing protection and recourse in the event of delayed or nonpayment are often removed and this places subcontractors, and even main contractors, at a disadvantage at a later stage.
“Unfortunately, some principal contractors also delay payments in order to gain the maximum possible interest from withholding the cash,” Duncan said.
Human said the MBA was currently working with the CIDB to finalise a voluntary standard for the industry to follow with regards to payments.
He said regulation would be ideal, but in order to promulgate one, the law that governs the CIDB would need to be amended.
He said contractors should work with members of the MBA so they can be held accountable to the industry code of conduct and the MBA can arbitrate disputes.