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No Payment guarantee: Is it worth the risk?

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No Payment guarantee: Is it worth the risk?

On February 22, 2019, Posted by , In SARACCA News Blog, With No Comments

The building industry is one of the largest contributors to the HVAC industry, many contractors, small and big, acquire a lot of business from this industry. However, an increasing number of HVAC contractors report a similar difficulty when entering into a contract with builders.

According to the JBCC Nominated/ Selected Subcontract Ed 6.2; the contractor shall 11.5.1. Provide to the subcontractor a guarantee for payment equal to ten per cent (10%) of the subcontract sum where required in the accepted tender (CD) within fifteen (15) working days of acceptance of the subcontractor’s tender.

The South African Refrigeration and Air Conditioning Contractors Association (SARACCA) hosts some of the most dynamic industry players, some of those members have reported a similar experience when entering a contractual agreement with builders. When HVAC contractors request a payment guarantee from the builder, as is expected, they are often denied the request and expected to carry the cost risks of completing the installations without receiving payment on time or any form of Payment Guarantee. It should be noted, it is not the responsibility of the HVAC contractor to fund the projects due to late payment of claims.

“Credit has always been a huge risk to the HVAC industry”– SARACCA Director, Barney Richardson

Based on a logical risk-analysis, an HVAC contractor should not enter into a contract which provides no payment guarantee. However, it has been reported that when one contractor insists on a payment agreement, the project manager simply moves on to the next contractor who is willing to complete the work without a guarantee and risk not being paid on time. Could this be contractual bullying?

On the face of it, the contractor could either, accept the risk of signing a contract and completing the work at risk and hoping to get paid. Or, reject the contract and be victimised and lose out on future work. For the growth and success of the HVAC industry, the contractors should be running profitable and reasonably safe businesses.

Competitiveness is healthy in every industry, however, poorly principled practices can jeopardise HVAC contractor by placing unnecessary risks in their way. The JBCC form of Contracts are there to protect all parties and must not be modified to the benefit of one against another.

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