IN THE KNOW —
It’s time to reconnect reward to performance A building contract is the Builder agreeing to deliver a quality-built product on time. In return, the customer agrees to pay on completion of a quality-built product being delivered.
Progress payments are a practical way to operate a business cashflow on large projects but anything in the agreement that separates performance from reward, is open to disruption, dishonesty, and disappointment.
Due diligence before saying no How many times on Fair Go do we see a trade service offer include the requirement for a significant unsecured cash deposit and then the service provider fails to deliver? Often, these are repeat offenders who have no intention of doing a quality build or any build at all. No one should have to pay ahead of performance in any contract for a service. If we eliminate unsecured cash deposits, we reconnect performance with reward, and ratbags can’t hurt innocent consumers. New Zealand Certified Builders (NZCB) has done great work developing contract terms to address some commonly themed behaviour issues experienced with some projects. Think of these as the ambulance at the bottom of the cliff. You are better off if they are not needed. Demanding a unsecured cash deposit before going into a contract blind, disconnects reward from performance, and is never a substitute for marching into comprehensive due diligence and exercising discretion, (saying no). Note: NZCB Building Contracts recommend deposits to be paid into an escrow account (be secured), to sit there only to be used, when either party is in breach of their obligations.
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New Zealand Certified Builders has done great work developing contract terms to address some commonly themed behaviour issues experienced with some projects. Retentions must die Retentions are also rationalised as necessary for surety of performance in case of defects arising. Hogwash, they only exist today because they disconnect reward from performance also. The formula for calculating retentions is a ponzi scheme depositing huge amounts of subcontractor’s cash into main contractor’s bank accounts, surplus to the needs of the contractor to offset retentions held by the client on them. When the main contractor has a bad job, someone else’s cash is readily available to cover it up. So long as business turnover remains steady, (no boom or busts), then even amounts of retentions will wash in and out of the main contractor’s account. No-one needs to know about these undisclosed, unauthorised, unsecured zero interest rated loans, singly arranged by the Main Contractor for the Main Contractor’s sole benefit. Nothing to see here folks!
