Social landlords don’t know whether contractors are requesting payment for the right amounts,
warns Theresa Mohammed (Theresa Mohammed is a contentious construction senior associate at Trowers & Hamlins)
Put bad practice behind you 27 August 2014
Most social landlords that develop homes have always disapproved of the now outdated practice of failing to pay contractors and subcontractors in a timely manner. They have taken a keen interest in the mechanics of the payment provisions under recent legislation.
Among our clients, we have seen social landlords bending over backwards to engage with contractors’ claims and cost overruns, even when this results in busting the budget for a project.
But this has to some extent gone too far and encouraged contractors to fall back on the old-fashioned claims culture of inflated and unsubstantiated claims for payment, which are difficult to assess with any accuracy. Contractors typically send these payment applications in the form of long spreadsheets of figures, relating to subcontractors. Some social landlords have been paying without checking for mistakes or asking for justification for the amounts requested.
Social landlords increasingly tell us about duplicated invoicing, spurious variations where a contractor claims that the scope of work has changed, the withholding of invoices for long periods of time, failure to follow any of the agreed payment processes, and contractors introducing payment terms or rates that were not agreed.
Lack of management
One of the main reasons for these problems is a distinct lack of senior management in repairs and maintenance contracting, which means costs are incurred and then crudely attributed to various categories of cost, such as preliminaries or planned works, which may or may not be legitimate.
“There are far too many incidences of housing associations paying millions of pounds when it is not evident that the claims are even permitted under their contracts”
When the costs are not being carefully allocated in good time, transparency is compromised and housing associations have no real understanding of the costs of work or projects. As a result, trust in the contractor is lost.
The nature of construction work does mean it is difficult to manage records, particularly if there are large volumes of orders, but managing them accurately is necessary if any contract is to be administered properly.
As lawyers will know, case law has repeatedly demonstrated that records are key and will make or break any legal claim. Yet still there are numerous situations where accounts are being valued at millions by the contractor and there are barely any invoices to support this.
Reasonable to a fault
Contractors are missing a trick because social landlords pride themselves on being reasonable and engaging with claims. If money is owed they will be paid – even when there are infringements of the agreed protocols. However, our view is that landlords are taking this reasonableness too far and should make sure they review high-value claims and impose stricter payment regimes so that they can act upon defaults quickly and with purpose.
There are far too many incidences of housing associations paying millions of pounds when it is not evident that the claims are even permitted under their contracts.
This might sound hard-nosed given that we are hopeful of an economic upturn. But it is so important to remember that unscrupulous practices ultimately have a negative effect on tenants, deplete financial reserves and are therefore an illegitimate obstacle to the provision of social housing.
Theresa Mohammed is a contentious construction senior associate at Trowers & Hamlins
Artcicle from Inside Housing http://www.insidehousing.co.uk/home/blogs/put-bad-practice-behind-you/7005264.article