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Sunday, 20 October 2013

WE ARE BUILDERS... NOT BANKERS!



ONTARIO TO INTRODUCE THE PROMPT PAYMENT ACT - BILL 69!

Making the transition from residential log home and timber construction to subcontracting our skills as heavy timber specialists on commercial projects has been a bit of a culture shock for us at Nicola LogWorks.
In our residential work we are technically a subcontractor but because the log or timber package governs the scope and flow of the work, we are accustomed to a great deal of input and control. We define the specifications of our own work and often that of others where it ties into the heavy timber package.
We have our own “log-centric” contract, which very clearly states what we are and are not supplying. We also determine our payment schedule - heavily weighted at the front end to assure customer commitment and to purchase wood. (We have often marvelled at the trust invested in us by our customers as they send us 100’s of thousands of dollars – often only knowing us on the telephone).

Subcontracting our skills to the commercial world is an entirely different ball game and we have found the cultural differences in the two environments an interesting challenge. No matter how amicable our negotiations have been with the Prime Contractor prior to signing the contract – when the document arrives for review, we find our blood boiling every time.

Here’s why:

The paid when paid/if paid clause. While payment from time of invoicing may take up to 45 days (fair enough given the paperwork burden), the insidious little clause allowing the Contractor to withhold payments until they receive their payment from the Owner is a hardship for Subcontractors who typically are paying on receipt or at outside within 30 days. The Subcontractor has no way of knowing if the Contractor has been paid by the Owner, of if the Contractor has been diligent in keeping current with their billing to the Owner.
Delay in payment means that the Subcontractor is financing the project


Keep working with a smile on your face...another bitter little clause in most of these documents includes a stipulation that in the event of delayed payment or non-payment or dispute – the Subcontractor will continue to work to scope and schedule and not impede the progress of the project. (Bend over and smile).
The subcontractor’s costs escalate while he continues to finance the project and if payment is not forthcoming he maysoon be paying interest on his overdraft.


Substantial Completion…..Holdbacks Heldback
Standard practice in commercial construction is the withholding of 10% from each progress invoice which is a very good idea as this ensures that the Subcontractor has incentive to complete the job and to ensure that he has met his obligations to other sub trades and suppliers.  Generally holdbacks are due 45 – 55 days upon substantial completion of the work.
BUT...
Does this mean substantial completion of the Subcontractor’s scope? 
Or does this mean completion of the entire project?
Read the fine print – ask the question. Know what the Lien Laws are in the jurisdiction that you are working in, or you may find yourself subsidizing their project out of your personal bank account.

We know. Despite completing our work (autumn of 2012) to the specifications and scope and much verbal appreciation for our talented crew we are still awaiting our final payment for our installation of the cross laminated timber and glue-lams at the Fort McMurray Airport. 

GOOD NEWS!

So why was my Wife doing the happy dance? (see blog # 1)
Recently we were chasing payment for a project in Ontario. We were on the hook for materials, labour and installation as well as trucking travel and crane rental. We’d met and exceeded our scope, fulfilled the terms of the contract, paid our bills and three months after first payment was due we were still financing the project!

Why was the Contractor not honouring their part of the agreement?  You guessed it – the paid when/paid if clause. As we understand it the Contractor had been tardy in submitting their billing to the Owner, so we had the privilege of financing the work. We finally saw action when we apprised them of our intent to file a lien on the work. We also discovered, in the course of our research on procedure, the soon to be passed Bill 69 Prompt Payment Act, which addresses all of the above and more.

This bill will bring the dealings between Contractors and Subcontractors back into a more equitable relationship and end the hardship that some Subcontractors are bearing.

Not only will it benefit the Subcontractor – it will also be of significant value to the construction industry as a whole. It will broaden the available pool of subcontractors willing to bid commercial projects; it will allow those already in the commercial arena to undertake more work. (It is either foolish or impossible to bid new projects when your cash flow is tied up in financing previous ones) and while the bill is unique to Ontario, I think we can expect that the other provinces will follow suit if those of us in the industry get involved.

The best thing about it to my mind is that it will remove the opportunity for contention. More bitter than being the financier on these big buck high profile jobs, is how the relationship building and cooperation that is so much a part of the pleasure we derive from our work is destroyed when we have to get hardnosed about payment. 

To conclude - I would not want to leave you with the impression that all of these mega companies are deliberately using these clauses to their own ends or are all negligent in their responsibilities on behalf of the SubContractor.  But it does happen - and apparently a lot - given that Prompt Payment legislation has been initiated in the UK, Ireland as well as south of the border.

That said - we've also had great experiences with some of the big companies as well, both for their fairness in dealing with us and the efficiency and integrity of their company cultures. Notably:
Bird Construction Vancouver  - Earth Sciences Building and StudentUnion Building (CLT and Glue-Lam Install)
Kindred Construction Vancouver - UBC Okanagan Health and Wellness Centre
PCL Construction - College of the OkanaganTrades Canopy, and as of October 15th The Wood Innovation Design Centre in Prince George.
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