Various contracting companies acquire most of their business from tendering in the building industry, the livelihood of several contracting industries such as HVAC rely largely on this work tendered by the building industry. However, this area has been very tricky to access with success for a few years now, it seems to be getting worse each year.
The South African Refrigeration and Air Conditioning Contractors Association (SARACCA) recently hosted a meeting with various HVAC contractors, members, and non-members. This group of industry players expressed a common threat; Payment, payment guarantees, timeous payment, quality of documents and design risk allocation.
These industry players reported a similar trend of occurrences when entering into contractual agreements with the builders. Very often, contractors and sub-contractors are not given a payment guarantee before commencing the work, this is an unacceptable practice by builders, and it should not be accepted nor should it be tolerated.
According to the JBCC Nominated/ Selected Subcontract Ed 6.2; the contractor shall 11.5.1. Provide to the subcontractor a guarantee for payment equal to ten per cent (10%) of the subcontract sum where required in the accepted tender (CD) within fifteen (15) working days of acceptance of the subcontractor’s tender.
Is Desperation for work putting Industries at Risk?
Running a business includes accepting a certain amount of risk, however, this does not entail uncalculated risk or shooting yourself in the foot. The HVAC contractors who attended the SARACCA meeting mentioned that very often when they demand a payment guarantee they are met with the words “If you cannot accept the risk, get out”. Is this not contractual bullying?
Many contractors have lost millions in unpaid earnings due from the builders because they have accepted terms and conditions that leave them walking on cracked glass. The contractors and Sub-contractors know and understand the implications of JBCC clauses and other relevant standards, however, very often desperation for work prevails.
Know and Understand the Contract
At times, contractors barely understand or notice the fine-print of the contractual agreements. It is crucial for contractors to carefully read the contract before signing it. Once it has been signed, getting out of the contract or negotiating new terms is virtually impossible. This is especially an issue with the newer companies who are still learning the ropes. Many of the contractors said, “We have learned to be contractors and paralegals at the same time”.
It is okay to acquire help. If the contract is just too complex, employ assistance. It is much better than sitting in an unbeneficial contract.
Pushing Back
The contractors who attended the SARACCA hosted meeting suggested a standard document which each contractor will submit to the builder upon tendering. This document will stipulate the terms and conditions of the contractor and what the contractor is willing to accept. Contractual bullying will not be tolerated anymore. A follow-up meeting has been proposed, this meeting will include contractors outside HVAC who face a similar threat when dealing with builders. The unanimous voice of contractors and subcontractors will not be left unheard.