Don’t Wait Until Your Money Is Gone
The Check That Helps Developers ‘Step In’ Before Their Builder Enters Administration
‘Step In’ Rights Are Great In Theory – But Will They Protect You In Practice?
It’s typical for developers to incorporate ‘step in’ rights into their head contract, giving them the right to pay subcontractors and suppliers directly should the builder fail to meet payment obligations (a payment default event). But despite holding the right to ‘step in’, very few developers ever do. Why?
What Good Are Contractual Protections If You’ll Never Have Enough Information To Act On Them?
There are countless instances where a builder has entered administration, leaving behind subcontractors and suppliers that are owed large sums of money across multiple progress claims – so why didn’t the developer ‘step in’ as soon as the builder stopped paying their subcontractors i.e. before their builder entered administration?
Because they didn’t know; HOW do you pick a false ‘stat dec’ from a true one?
Despite being one of the core requirements for the release of funds by developers and lenders (not to mention, a legal document), the likelihood of prosecution for submitting a false or misleading ‘stat dec’ is extremely low – all that’s standing between a distressed builder and the payment they need is a signature on a little piece of paper that no one has sufficient information to challenge.
You can have all the contract protections, provisions and clauses you want but unless you can validate (or more to the point, invalidate) the builders’ ‘stat dec’, you can’t act on them.
‘Stepping In’ Before The Money Is Gone Requires Early and Accurate Information On Subcontractor Payments
Not only does your signed ‘stat dec’ provide little comfort, by the time word of missed payments and disgruntled subcontractors filters through to the developer and questions start being asked, you’ve already accumulated months of bad news (and likely released multiple progress payments). Add to this the time it takes to test your builders’ very plausible ‘reasons’, conclude that there is an issue and complete the admin required to act, it’s probably too late.
Protecting your project requires early information. And although the ‘stat dec’ process is clearly flawed as a stand-alone solution, it is actually the key to early intervention once you can verify it.
Your Builder Has Provided A Statutory Declaration Confirming Subcontractor Payments; Act Immediately If Untrue
Rather than suggesting that the builders ‘stat dec’ be removed as a requirement, we’re offering developers a way to check them and make the builders declaration meaningful. IPEX lets you verify every single payment; if your builder submits a fraudulent ‘stat dec’ by claiming they’ve paid someone they haven’t, you can identify it immediately and take action before releasing further payment.
1. Has each subcontractor and supplier linked to the last claim received payment?
2. Does the amount received by each subcontractor/supplier line up with work completed – this can be in the form of percentage paid against their contract value (IPEX standard view) or exact dollar amounts (IPEX open book view)
If there’s any discrepancy between expected and actual, you can seek an immediate explanation and have this remedied before the next claim is approved or, in the case of more serious/repeated breaches, enliven protective clauses and even take control of the project account*.
You Can Trust Your Builder To Do The Right Thing Or, You Can Remove The Option Not To
In addition to validation of a builder ‘stat dec’, IPEX also ring-fences’ your funds to your project, preventing a builder from using subcontractor entitlements to cash flow another project (or worse), a key motive behind non-payment of subcontractors and the subsequent falsified declarations. Practically, this means that if the builder has not yet paid a subcontractor, the funds remain in the IPEX account – this is critical in the months preceding a builder entering administration.
IPEX Doesn’t Change Your Contract, It Just Makes The Consequences Of Breaking It Real
Despite builders already being required to operate under a range of checks and balances, none of these processes provide developers with certainty, meaning the consequences for breaching contractual terms are largely theoretical – by the time most developers have sufficient evidence to ‘step in’, their builder has entered external administration and multiple progress payments are gone.
IPEX doesn’t change your agreement with your builder, it provides a range of practical controls to ensure they are always operating within it. Crucially, IPEX also provides the payment verification data you need to identify fraudulent or misleading declarations immediately, allowing you to maximise the use of existing legal protections and rights.
So, keep requesting those ‘stat decs’, just confirm they’re true before releasing that next progress payment!
For a demonstration of the monthly ‘stat dec’ validation process and impact IPEX may have under a payment default event, click here.
*Taking control of the IPEX project trust account requires all relevant IPEX clauses be incorporated into the head contract and fully executed. Not enforceable under QBCC legislation.
To find out if IPEX can be implemented on your next project, get in touch.
