Whether the result of underquoting to win a contract or simply having cost of materials/labour rise unexpectedly on a fixed price contract, many Builders are finding themselves in a position where they are no longer able to complete projects for the amount agreed, creating a shortfall that needs to be covered.
When progress payments for multiple projects are being deposited into the one account, it’s practically impossible to avoid using funds intended for one project to pay bills linked to another. This ‘swings & roundabouts’ approach has had fewer consequences in the past however, carries extreme risk in today’s market; if even a single project runs into trouble, the resultant shortfall is likely being covered with another Developers money.
Project shortfalls can become so large that ‘buying’ a new contract is the only remaining option; submitting an extremely low margin bid with the sole intention of injecting cash into the business. The cut-rate might be appealing but comes at huge risk to the Developer with early progress payments almost certain to be used to bring another project to completion. Whilst you may award your projects at sensible margins, you are exposed if ANY project linked to your Builder runs into financial trouble.
- Managing multiple projects from a single bank account
- ‘Front loading’ of early progress payment claims
- Short paying sub-contractors & suppliers from progress payments
- Delaying sub-contractor payments
- Bidding on new contracts when already in financial difficulty
The recent wave of highly publicised Builder insolvencies has unfairly (albeit understandably) cast doubt over all Builders.
This has led to ever increasing scrutiny on Builder finances but ultimately, Developers know that they can never be sure.
Whilst there are many Builders who are factoring foreseeable risk into margins & managing client funds appropriately, the problem for Developers (& these ‘prudent’ Builders) is, it’s hard to know who they are!
Regardless of the number of successful projects you’ve completed together, without transparency around the progress claim/payment process, you can never be sure whether your Builder is managing your money responsibly or you’ve just ‘got lucky’.