Cash-flow is king in the construction industry, and the recent collapse of Stonewood Homes provides another reminder about the need to protect subcontractors from such an event.
The collapse of Stonewood Homes is just a high profile example of an all too common occurrence in the industry, that ultimately results in subcontractors suffering the most. The upcoming introduction of the retentions trust regime in 2017 is a measure designed to secure retentions, but this is only a small percentage of what subcontractors stand to lose in the event of the insolvency of a main contractor.
However, there are proactive steps subcontractors can take right away to protect themselves.
Christchurch’s building debt has increased by about 40 percent from 2014 as more subcontractors are being chased for money they owe – and in turn chasing clients for money owed to them. To combat cash flow issues one debt collection agency recommends reducing payment terms – for example from two weeks to one.
Another example of a way subcontractors can protect themselves is taking out insurance. A subcontractor can take out a Subcontractor Payment Guarantee policy, this will insulate them in the event of a head contractor insolvency and guarantee them up to 75% of the money they are owed. Boutique insurer Builtin offers such a policy, which is an innovative way of securing cash-flow and insuring the failings of a head contractor don’t trickle down.
Subcontractors are in a vulnerable position in the industry, and there needs to be effective mechanisms in place to ensure they are paid what is due – a measure of protection is offered by the Construction Contracts Act but as demonstrated there are other ways subcontractors can have assurance they will weather the failure of a head contractor.