To the Little Guy

I wrote in April this year about the need for main contractors in the building industry to complete due diligence on sub-contractors when entering into building contracts in order to ensure the completion, and financial viability, of the contract.

Now for some balance to that story. Soon after writing that column, a Christchurch sub-contractor dug up an entire carpark out of frustration for not being paid by the main contractor. That episode played out in the High Court earlier this month and the sub-contractor was awarded $300,000 and the main contractor was pretty much sanctioned for withholding payment for no reason.

You have to ask why does a sub-contractor need to resort to this sort of action to get attention and payment when the Construction Contracts Act (CCA) exists?

The view of a few of my clients is that the CCA does not work for the ‘small guy’. Sub-contractors feel that the main-contractor (MC) pays lip service to the general intention of the CCA but pretty much ignores the true intent when it comes to payment dates, even incorporating their own payment terms into the tender documents.

This begs the question as to why the MC is not making payment when the work has been completed. To me there can only be three reasons:

– there is an issue with the quality or completeness of the work

– the MC is simply being difficult

– the MC has insufficient cash to pay (remember Mainzeal)

One local business is owed a significant amount by an MC, all claimed under CCA. The MC cannot pay due to their undervaluing the overall contract. This debt can be pursued via the CCA but where does that leave this business? It plays out like this – invoke the CCA and pursue through the Courts; judgment is made; MC cannot pay and is wound up. Liquidator arrives, makes possible claim against you for any payment received (voidable transactions) and you are left with nothing as you are an unsecured creditor. Not an attractive option when you have personal guarantees and a family to provide for.

The lesson from the recent court case is that, if the work has been completed per the contract, payment needs to be made. If you are a sub-contractor, make some noise and stand up for your rights. You can guarantee there will be others not getting paid so band together and ‘make a scene’. Lobby for a change to the CCA if needed.

And let’s hope you don’t need to resort to digging up a carpark to get some action.

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