The perils of not having a signed contract

Suppliers and contractors who conduct their day-to-day business without ensuring their contractual rights are protected are placing their businesses at legal and financial risk. And in a post-lockdown world where the construction industry is already in crisis, this is something that most companies can ill afford, says Databuild CEO Morag Evans.

“It’s all about knowing the party you are trading with and the terms under which you trade,” concurs Building Credit Management regional director Chris Oldacre, speaking at a webinar hosted by Databuild.

“Without a comprehensive contract or sale agreement in place, not only is it impossible to know the registered legal entity you are dealing with but, as stipulated in the recently enacted Protection of Personal Information Act, you are prohibited from assessing the credit worthiness of your customer or supplier.

“Additionally, the business has no protection around the terms and conditions of sale. Consequently, when disputes arise – and they will – parties could be held to terms and assumptions of risk which they believe they never agreed to, leading to claims and counterclaims. And without a contract clause stating that the customer is liable for the legal fees, these costs will be unrecoverable. This is not only frustrating and time-consuming but could prove to be very expensive.”
 
JBCC and GCC

According to Oldacre, both Joint Building Contracts Committee (JBCC) contracts and the General Conditions of Contract (GCC) are intended to be fair to the contracting parties and clearly define the rights and obligations of each.

“However, it’s important to fully understand the agreements specified in these contracts, as this will affect work performance and payment ability.

“Take note of any notification requirements stipulated and the timelines involved for each,” he advises. “Also be cautious of any changes made, as these typically tilt the balance in favour of one of the parties. While the changes may mean fewer obligations on the part of one party, this is usually accompanied by diminished rights.”

“Be particularly aware of ‘pay when paid’ clauses,” Oldacre continues. “These can hugely impact a contractor or sub-contractor’s cash flow, negatively affecting their work performance and ability to pay suppliers on time, which can result in price increases over the long term.

“Consequently, to avoid having to deal with late or incomplete payments later, it is important to make sure you fully understand the implications of all amendments made before signing the contract.”

“Commencing a project without a signed contract is perilous, to say the least, even if all the parties have the best intentions,” says Evans. “Construction industry participants should not allow themselves to be hurried into any trade or site activity before agreeing contractually to the conditions of work and payment.

Failure to do so will weaken the company’s legal and financial standing and severely impact the longevity of the business,” she concludes.