Sub-contractors feel the pressure

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Sub-contractors in the construction sector are among those hardest hit by housebuilders’ attempts to reduce costs – and some are crying foul against the techniques used to get them to cut rates.

Divisions of Barratt Homes, Bellway, Bloor Homes, Taylor Wimpey
and Persimmon have all demanded immediate cost reductions of 2.5 to 5 per cent on existing contracts, citing the need to protect margins in the face of difficult market conditions.

Though most of the cut-backs requested have been on contracts where work is yet to be completed, there have been instances where payment for work carried out has been reduced.

The move has angered sub-contractors and taken industry watchers by surprise. “The trend in recent years has been away from confrontation and towards a partnering approach,” says Rupert Choat, a partner in CMS Cameron McKenna’s construction practice.

“Clearly, with the market pressure right now, the housebuilders are going back to their bad old ways.”

Sub-contractors recently scored a victory when Barratt Homes lost an adjudication brought by Southern Glass Services.

The housebuilder was ordered to pay SGS, one of its sub-contractors, £19,000 of “improperly withheld” cash, plus interest.

Peter English, a dispute resolution expert who advised SGS, claims that several other sub-contractors are now starting proceedings against housebuilders. But he warns that “you need to be fairly confident of your case to bring it to adjudication, as not all costs are borne by the losing side. It won’t be worth it for anything below £10,000.”

Suzannah Nichol, chief executive of the National Specialist Contractors Council, a trade body, is encouraging sub-contractors to check invoices and make sure no deductions are made without prior agreement.

“A letter announcing a cost reduction doesn’t count as a renegotiation of an agreed contract. We’ve been advising our members that this is illegal, and the SGS case proves this.”

Though it admits that it has sent letter to sub-contractors demanding discounts, Barratt denies it has done so for work already carried out. It emphasised that the SGS case was clouded by ongoing legal disagreements between the parties.

Meanwhile, John Palmer, SGS’s sales and marketing director, claims he has no regrets over taking Barratt to adjudication. “We had no desire to take action in this way. As far as we’re concerned, we’ve moved on.”

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