Introduction
This article has been written by whojungle in conjunction with SubbiesUnited in response to questions being raised about builders asking subbies and suppliers for large discounts.
The fact that builders are asking for large discounts on current contracts is an indication that the builder may be in financial trouble which will leave subbies exposed to preferences at a later date.
The old chestnut "help me with a 15% discount so I can give you more work is not new". It comes in various forms.
In the Cullen collapse a meeting was held in November 2016 where those present were exhorted with "the more you can install, the more we can invoice, the more we can invoice the more you will be paid".
A month later the company was in liquidation after subbies had poured even more precious resources into a company that was always going to fail.
Builders asking for large discounts because of the Corona Virus is nothing more than opportunistic greed or alternatively they are in financial difficulty.
For the purposes of this article, there are 3 Categories;
1. Builders demanding a discount or the next progress claim will not be paid or not paid on time. Or, "if you don't or can't participate in the discount, we will need to look at alternative suppliers".
2. Written demands that refer to assistance in funding for advertising and so on with verbal commentary that if the discount to provide the assistance is not provided there will be problems with the next progress payment; and
3. Indications of the percentage reductions in price the builder expects on future quotes.
One of the reasons they give for their expectation of a discount is that "there are less cars on the road and fuel is cheaper with less travelling time so your costs are cheaper". Therefore, any saving should be handed over to the builder by way of a discount.
What sort of news comes out of these 3 items?
Items one and two are subject to both good and bad news.
The good news will vindicate the anger people are feeling over the arrogance, ignorance and the audacity of the demands.
The bad news is that you cannot just feel angry about this and ignore it.
You must address this before you proceed any further on any project for any builder who has asked for an item one or two type discount.
Failure to do so can result in you having to pay money back to a liquidator in the event of a preferential payment claim.
As to item 3, the news is sweet and sour but is useful none the less.
The good news
Builders have no right to unilaterally demand a discount on an existing contract.
There should also be no need to ask for a discount on an existing contract.
Any builder asking for discounts with threats attached should face immediate license suspension and have their books looked at by the QBCC.
The reality is that the developer still has to pay the builder the same contract amount now as they did before COVID 19.
If the developer is experiencing increased risk as a result of current events, that's their problem but you can be certain of one thing, the builder will not be passing on any discount you give them. That discount will go towards paying off their multi million dollar mansions.
The reality is that the amount you have to pay your suppliers and staff is not going to magically drop by the amount of the discount being asked for.
In one case brought to our attention, the builder said "if you want to be paid on time you will provide us with a 15% discount". Even though a current contract is in place.
There is no magical 15% available for subbies to pass onto builders.
You should be comforted by the fact that builders who pay late are liable for 67P interest. That is a generous interest rate at 10% plus the 90 day bank bill rate compounded daily. It's time subbies started charging builders interest who are late with payments.
The 67P calculation is difficult but whojungle.com.au have an app that does the calculation for you.
The bad news
The demands for a discount, even item 2 demands without the verbal threats trigger the preferential payment provisions under the corporations act.
It is important that you read this article on preferential payments.
You are going to have to send a written reply that covers certain technical aspects to cover your position in the event the builders asking and in some cases, demanding the discount, liquidates at a later date.
We understand the outrage but it is not enough to simply say no or tell them to get stuffed.
Even if you do decide to give the builder a discount, you may still have to pay the money back as a preferential payment which would compound your losses.
If you feel you can't prepare an adequate document in response to the demands for a discount, we can prepare the document for you so contact us.
Sweet and sour for item three
Prices may fall but not in a way so that anyone can specify a percentage now. There is no justification for passing any reductions onto builders because their prices will fall too for the same reasons yours will.
Builders, subbies and suppliers businesses will contract so each has to manage their own contraction. Some are doing it by reduced hours and days worked each week and taking advantage of government subsidies to keep their staff employed.
Shaping the environment
There are reforms that have been in the pipeline for a while that need to be expedited and others that need to be brought to light which we will do in the near future.
Read the article on project bank accounts and the article on abolishing retention monies.
Related articles
Why are project bank account being delayed?
Is your hand caught in the log
If you need any further information contact us or join SubbiesUnited, there is strength in numbers.
While Subcontractors Alliance and Subbies United have been pushing hard and making progress they need help.
Send the links to those articles to your local state member and be loud about your discontent.
If you need help
We do provide help and assistance. Contact us if you are in trouble, need help or are worried.
Leave a Reply
You must be logged in to post a comment.