What to do if you’re experiencing ‘subbie bashing’ as a subcontractor in the construction industry
Posted by: electime 5th December 2024
Subcontractors play an important role in the construction industry, allowing projects to be successfully completed for clients and main contractors within the scheduled timeframe.
However, subcontractors can face significant competition from fellow subcontractors who are also seeking work. This can create a landscape where some contractors will act in an opportunistic and underhanded way to benefit financially.
To help subcontractors, managing director of Company Rescue, Keith Steven, shares how to reduce your risk of experiencing ‘subbie bashing’, as well as what your options are if you’ve been impacted by this practice.
What is ‘subbie bashing’?
‘Subbie bashing’ involves larger corporations financially intimidating smaller subcontractors, which they have a working relationship with. Common reasons this occurs is to either make more money overall on a project, or to improve margins on a project which has turned out to not be as profitable as expected.
Many smaller subcontractors may avoid standing up to the intimidation, due to concerns over losing any business with them in the future.
Subbie bashing may involve:
- Refusing final payments
- Outlining harsh contract terms
- Undervaluing payment certificates
- Withholding retention payments, following false claims regarding defects and incomplete work
Those experiencing ‘subbie bashing’ can suffer with cash flow problems, ultimately preventing them from being able to pay their own creditors. This can lead to the domino effect of insolvency.
How can I avoid ‘subbie bashing’?
To reduce your risk of falling victim to cash flow issues, as a result of ‘subbie bashing’, it’s a wise idea to take on a number of different contracts, rather than focusing on one large contract. By varying the work you take on, this can help to prevent a strain on your cash flow, should you experience a bullying contractor. Another way to reduce your risk is to just take on contracts that are similar to your company’s size.
What action can you take if you’ve been impacted by subbie bashing?
One avenue is to take the case to court to recover the payment you’re due, with a winding up petition. This is an expensive course of action with court costs of c.£4k+ and the debt must not be in dispute; it can be effective but is a blunt instrument. However, understandably so, many smaller companies are not able to pursue this due to the cost of legal fees.
If the failure of the main contractor to pay you is threatening the viability of your business and allowing debt to pile up, there are a few actions you can take. These include a Company Voluntary Arrangement (CVA), Administration, or Creditors’ Voluntary Liquidation (CVL).
Company Voluntary Arrangement
If the company is viable in that some debts could be paid off over a 3-5 year period then a company voluntary arrangement (CVA) might be an option. If 75% by value of the HMRC and unsecured creditors vote to support the proposal it is binding on all the others.
Administration
Administration is a very powerful process for gaining control when a company has serious cashflow problems, is insolvent and facing serious threats from creditors. Once an administrator is appointed this places a moratorium around the company and stops all legal actions. The administrators can then try and sell the business.
Creditors’ Voluntary Liquidation
If the company is no longer viable, not just due to lack of payments from the main contractor, then the directors may have to go into liquidation to avoid making the situation worse for their creditors. The liquidator can then try and recover the payments on behalf of the company.
Company Rescue people are passionate about saving viable businesses and giving the best possible advice to directors, creditors and stakeholders in any insolvency situation. For more information view their guides here, or call their professionals for advice on 0800 9700539.
