Two in three subcontractors face pressure from housebuilders to reduce their prices after contracts have been awarded, according to a survey.
Subcontractors face “aggressive negotiation” to reduce their prices after housing tenders have been awarded, particularly from housebuilders operating at a national level, the study by trade body the Finishes and Interiors Sector (FIS) said.
The widespread study also revealed issues around the release of retentions, with more than half of respondents saying their retentions are not released on time.
Today’s FIS report, called Procurement, Payment and Contract Management: The Challenges in the Low and Mid-Rise Housing Sector, warned that post-contract award pressure is “common” and is most prevalent when working for national housebuilders.
The report was based on surveys with 93 subcontractors.
More than two-thirds of the subcontractors said they face pressure to reduce their prices by housebuilders, while 44 per cent of those working for national housebuilders said they face that pressure “most or all the time”.
This pressure “can manifest at the point of tender or when seeking final payment and aggressive negotiation results in work being undervalued to expedite payment”, the FIS said.
Retentions also came under the microscope, with more than half the subcontractors reporting they are released late.
Eight in ten respondents said they at least sometimes fail to recover retentions when working for national housebuilders, while 40 per cent said that retention practices have got worse, with just 15 per cent saying they had got “much better”.
FIS chief executive Iain McIlwee said: “For too long, aggressive, price-first procurement, inconsistent and delayed payment, post‑award price reductions, and regressive retention practices have weakened the specialist supply chain.”
He said those behaviours “restrict capacity, inhibit workforce development and diminish the sector’s ability to perform and ultimately invest in more modern methods of construction”.
“They create volatility where stability is essential, and they deter vital investment in people and modernisation,” he added.
The FIS report warned that bespoke contracts in the housebuilding sector “dominate” and that seven in ten subcontractors never take legal advice before signing a contract.
The industry body added that many of the survey respondents in said there is no point in taking legal advice because there is “very little opportunity to negotiate terms”.
But the FIS recommended supply chain firms consider legal advice when working on non-standard contracts.
Respondents also raised issues around late notice to start work, with fewer than a third of the companies reporting more than six weeks’ notice of work starting.
Four in ten said they had received less than three weeks’ notice from major housebuilders.
“This is despite essential preconstruction work requiring mobilisation of labour, preliminary preparations and securing materials,” the FIS said.
Late payment of retentions and pay in general have been under the microscope for years.
Rudi Klein, a barrister and former chief executive of the Specialist Engineering Contractors Group, called on the government to introduce legislation to punish repeated late payers, modelled on a system to fine supermarkets that do not meet regulations.
“We should have something like the groceries code adjudicator,” he told Construction News. This adjudicator has the power to fine supermarkets that do not act ethically as much as 1 per cent of their turnover.
Klein suggested the incoming Single Construction Regulator should have powers to fine clients or contractors that are repeat offenders.
Currently, he said, there is not enough legislation to force clients or contractors to pay on time.
“At the end of day, what do you if people don’t pay you?”
The onus is currently on subcontractors to push to get their money back, using up valuable time and resources, he added.
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Joshua Stein