Waikato Business News November/December 2018

40 WAIKATO BUSINESS NEWS November/December 2018
Size doesn’t guarantee security
when it comes to contracting
I had a meeting recently with an earthworks
company and one of their comments was,
“I don’t need terms of trade or to be a
secured creditor, because I only deal with
large construction companies.”
My response was to
remind them that
Mainzeal, Ebert,
Orange H and other large
construction companies have
run into difficulties in recent
times, despite their size.
Being a small supplier
to a large company doesn’t
make you safer - it just makes
you part of a larger group of
creditors. Whether that larger
group gets paid or not depends
on a number of factors.
The main risk that I have
seen with small subcontractors
working exclusively with
one large client on a large
project, is that to secure the
work there are often multiple
tenders or bids.
To have a good chance of
success amongst many competitors,
the bids are often
priced at a very low margin,
with the hope that the total
quantity of work will make up
for the lower margin.
But in my experience, a
low margin is a low margin
irrespective of the job size.
And that low margin brings
with it the possibility of unexpected
costs and unforeseen
difficulties turning a low-margin
into a no-margin scenario.
Another risk is that many
of the subcontractor agreements
large companies have
their subcontractors sign are
blatantly one-sided.
And because the company
may well have executed hundreds
of these type of projects,
you had better believe
that every single clause in the
contract is there to protect the
company from loss.
It is likely to be based on
something that does and has
happened.
Loss never just evaporates
- it is always experienced by
someone in the construction
supply chain.
And large companies hire
professionals whose entire
role is to try and ensure that
it is not them that suffers the
loss.
Just a few months ago I
read in a subcontractor agreement
a client had been asked
to sign the following clause:
“The contractor agrees
that they will not increase the
quoted price, irrespective of
changes made to plans, specifications
or requirements.”
Agreeing to this would, in
my view, be ill-advised and
potentially could prove to be
financial suicide.
Now I’m not saying that
just because a construction
company is large, they are in
some way unethical or predatory.
But in a situation where
unforeseen circumstances can
impact the potential profit of
a job, it is essential that both
parties can share driving the
bus, not be driven over - or
under.
When one of the largest
and oldest-established companies
in NZ can lose more
than $100 million on a single
job, it shows that it can happen
to absolutely anyone.
Entering into unsecured,
unequal agreements to get
the work, can be likened to
playing rugby against a team
when only one of you has a
set of goalposts and the opposition
also has the referee on
its side, or getting married
with only party having a say
in writing the vows (goodness
knows what I would
have agreed to, if my husband
wrote our vows!)
If the only difference I ever
make to a business is helping
ensure they enter more equal
contractual relationships, and
making sure they will have
ranking as a secured creditor
in the event of something
going wrong, then I would
consider my involvement a
success.
CREDIT MANAGEMENT
> BY MELONIE CURWOOD
& NICK KERR
Melonie Curwood is Area Manager WAIKATO for EC Credit Control NZ Ltd.
She can be reached at melonie.curwood@eccreditcontrol.co.nz
Nick Kerr is Area Manager BOP for EC Credit Control NZ Ltd.
He can be reached at nick.kerr@eccreditcontrol.co.nz
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