Talking to members over recent months, it has become clear that bad debts have become an increasingly serious problem for many businesses in the building industry.
I appreciate that for many readers the rest of this column may be teaching grandmothers to suck eggs, but given the number of severe difficulties some members are currently facing with bad debts I thought it would be helpful to set out how FMB can help in these circumstances and make a few suggestions on how pre-planning can make recovery less difficult should the worst happen to you.
CONTRACTS ARE IMPERATIVE
Work undertaken for another business or a public body is likely to be covered by a contract and to be covered by the provision of the Construction Act. Recent revisions to this Act should make it easier? for contractors and sub-contractors to receive payments under the terms of the contract. In the February 2011 issue of Master Builder magazine Professor Rudi Klein wrote an article explaining how this works.
Probably the greater difficulty is with work done for domestic clients who either cannot or will not pay the bill. FMB’s advice is clear; please make sure you have a contract with your client. Copies of FMB-approved contracts are available free of charge here.
The contracts have been drafted by experts in construction law and have the plain English crystal mark to ensure they are easy to understand and complete. Any variations to the contract or job specification whilst the work is underway should be recorded with signed consent from both you and client. These are vital documents to support action if the client will not pay you. Whilst these are difficult times, and few builders can afford to turn down work, serious consideration should be given as to whether it is in your interest to work for a client who will not enter into a contract.
MANAGING DISPUTES
If there is a dispute over the bill, try to encourage the client to initiate the FMB Complaints Procedure and agree to resolve the dispute through the FMB Adjudication Scheme. Once the process is started you will need to provide written evidence of your case for which the contract and variations document will be crucial elements. The adjudicator may ask you for additional information and ask you to attend a site meeting with the client but should give a decision within a month. The adjudicator may ask you to make a contribution towards the cost of his work but you can reclaim that cost through the FMB Members Legal Protection scheme provided the adjudication has been arranged as part of the FMB Complaints Procedure. Unfortunately, the costs of adjudications arranged outside of our complaints procedure are not covered by this insurance and cannot be recovered.
FMB now has experience of several hundred adjudications involving members and their clients. In the vast majority of cases where a member has been successful the clients pays without further protest. If the client still refuses to pay, the Legal Protection Scheme will support you in going to court to get the adjudication award enforced. DAS assess there is a 60 percent chance of success.
However there are cases in which the client refuses either to make a complaint or to agree to adjudication. If the outstanding money due to you is undisputed, has been outstanding for 90 days or less, is more than £250 and if that the project started after 1 Jan 2010, the Legal Protection Scheme will cover your legal fees. For claims outside of these criteria FMB has a network of local solicitors who are able to give advice on the most appropriate way to secure the money you are owed. This service includes writing a letter before action to the client, free of charge.
AFTER THE EVENT INSURANCE
FMB is now able to offer a new service through your Legal Protection for use when the client claims a reason, for example poor workmanship, but refuses to make a complaint. ‘After the event’ insurance is now available if the amount in dispute exceeds £5,000. The insurer will assess each case and make a judgement on whether legal action would be successful. If they conclude that it would, you will be provided with support to take legal action against the client. If the amount is less than £5,000 FMB recommends that you take action through the Small Claims Court service.
In all of these circumstances the really important thing is to make sure that the correct procedures have been followed. Please contact FMB at the earliest opportunity for guidance on the best way forward and hopefully any problems you have with bad debts will be diminished.
