Client has retained funds from invoice

[cookiemonster99]

Hi Everyone

I hope you are all safe and well.

We have recently completed a large project for a private client. I will not bore you with the details but we are a national roofing/building contractor.

We have issued invoices for staged payments over the last few months and been paid immediately as per our terms.

We have sent over the final invoice and the client has been advised by his architect to retain £6,000 of the final until any snagging has been identified and we are allowed back later (much later) in the year to fix any problems...

FYI no retention was ever discussed, or agreed before we commenced - we would never have taken the project if this was the case as we never take such works on like this.

They have clearly stated between them that they are happy to pay the balance 'when' we return to the property later in the year to undertake any snags.

Now - we have already stated clearly that we would of course honour our obligations and if there are snags we would of course return regardless to rectify these but being deducted thousands without prior agreement is a bitter blow and actually does hurt us a little financially in the current climate.

Am I right in saying - unless agreed prior to commencing the project that retaining monies is not allowed and the balance of the invoice needs paying in full?

Many thanks

 

[Darren_Ssc]

Which standard form of building contract were you working under?

 

[cookiemonster99]

We were not working under any? It was a normal you complete the works and put your invoice in.

In this case the project was over a period of months and we recieved part payments for works completed to date throughout.

We have not signed up to something like a JCT.

 

[Newchodge]

So y6ou don't have a contract stating, for example, payment is due within 30 days of the date of the invoice? Neither do you have a contract stating, for example, that 10% of the total cost may be withheld until snagging works are completed?

Why would the snagging work not be done until much later?

 

[Darren_Ssc]

It is normal to have some form of retention clause but, in the absence of such, the client could simply say that works were not completed, or not to a reasonable standard in order to withhold payment. So long as he is allowing you the opportunity to put the work right there isn't much you're going to be able to do about it legally.

I am over ten years out of the game, so to speak, but I believe that a standard form contract can be used in court as a benchmark even if none is actually in place since, as an experienced contractor, you would be expected to be conversant with such. I am not qualified to say exactly, just something I vaguely remember.

 

[Darren_Ssc]

Why would the snagging work not be done until much later?

It is normal to have a snagging list drawn up 6 months after completion since some defects take a while to be discovered. Roofing, especially, is one such trade where such 'hidden' defects are common.

 

[cookiemonster99]

The invoices have always been clearly marked immediate payment and have always been paid so. We were assuming that as there was no agreement in writing beforehand about a retention that they could not do so. So what would stop them retaining 90% of the invoice and making it up as they go along?

They are having other works done to a different part of the property and this is being completed before we return...

Again - having no agreement in place surely would not allow them to just retain what they want for however long they want?

So far the only snagging is for one of the smallest items on the bill - £380.00 and some paint which is neither here nor there.

So why not just retain those items? The whole project was £195,000 to us

 

[Darren_Ssc]

So what would stop them retaining 90% of the invoice and making it up as they go along?

Nothing, although it would be hard to defend in court. In a previous life I have worked in commercial construction and there are a thousand and one ways to do over another contractor - and I'm talking about firms with their own QS and contract managers who can cite all JCT contract clauses from memory.

You are very much at the mercy of the goodwill of the client and his architect. If the defects mentioned thus far are indeed minor then take this as a good sign that they are acting properly.

 

[cookiemonster99]

Many thanks for your advice

 

[The Byre]

I've done a shed-load of these from the other side - i.e. as the customer. Once that final payment goes in, that's it! If the customer is unable to find faults straight away, they should get someone who knows how to do this. Rocket science - it am not!

We do things that way for our own benefit. We are known locally to be excellent payers. That means that when we call, people come! On one occasion, the tradesman saw a car we had on a SORN and wanted to buy it. We agreed on a price and he wanted to take it off the invoice. He hadn't packed his stuff away yet but he was too late - whilst I was shooting the breeze with the guy, bookkeeping had already paid him!

We've only ever been slightly late on one occasion - two weeks. The RBS held up payment from our Luxembourg account because they thought it might be money laundering. I could have murdered them - sadly it seems there is some obscure law preventing one from murdering bankers.

It is normal to have a snagging list drawn up 6 months after completion since some defects take a while to be discovered. Roofing, especially, is one such trade where such 'hidden' defects are common.

In that case, the client should put that into the contract or even put it into the purchase order. The customer cannot unilaterally change the terms of a contract.

If you know what you are doing as a customer, you do not need time to discover faults. You watch and supervise the work being done and, assuming that the work has been completed to your satisfaction, you pay within the time agreed to. If you do not know what you are doing and you need someone to inspect the work and this takes time, that should go into the contract or the order. In that case, you are going to have to pay a bit more.

We have sent over the final invoice and the client has been advised by his architect to retain £6,000 of the final until any snagging has been identified and we are allowed back later (much later) in the year to fix any problems.

I have long-since come to the conclusion that this world would be a better place without architects. Make that architects and bankers.

Architects are OK if one keeps them locked up and on a short leash. In the OP's case, the client has allowed his architect to 'supervise' (i.e. meddle) in the works in order to bolster his fee.

It is incidents like this one that make me thankful that I have never allowed an architect to so much as pick his nose on my dime, once the drawings have been completed.

 

[Newchodge]

It is normal to have a snagging list drawn up 6 months after completion since some defects take a while to be discovered. Roofing, especially, is one such trade where such 'hidden' defects are common.

Thanks, is it also normal to refuse to pay until such a list has been drawn up?

 

[Darren_Ssc]

Thanks, is it also normal to refuse to pay until such a list has been drawn up?

It is normal to hold back a percentage, yes.

 

[The Byre]

It is normal to hold back a percentage, yes.

No. It is only 'normal' if it has been contractually agreed. If the architect actually knew what he was doing, he would have told the client to ask for this term in the first place.

 

[Darren_Ssc]

No. It is only 'normal' if it has been contractually agreed. If the architect actually knew what he was doing, he would have told the client to ask for this term in the first place.

It is normal to have some form of contract in place. The possibility this was all done on a nod and wink exists; it's also possible the architect is an idiot.

Can the OP go to court and tell the judge he never normally does roofing work with a retention clause and he never agreed to do so on this job either. Yes he can. Would I advise him to do so, not really. The possibility also exists that the architect and his client are not idiots after all and may retaliate accordingly.

They are currently holding 6K on a 195K job and appear not to be making any extreme demands. Legal action by the OP is going to be expensive and likely to extend way beyond the date when this matter may otherwise be amicably settled with a relationship intact.

OP should be doing such work under some form of contract and, hopefully, will not be making the same mistake again?

 

[Mark T Jones]

Hopefully the contract us a lesson learned

Legally you are entering into a potentially costly ^ time consuming cycle of who said what and who assumed what

As I see it, you have 3 options

1 dive into legal within and take your chances with the courts (which may well take more than 6 months)

2 negotiate a slightly lower retention

3. Go with it and make sure everything is OK

Personally I'd go for 3 and invest in professional contracts

 

[The Byre]

As any withheld funds are a form of unsecured loan, contractual interest should be charged at a suitable rate of perhaps 25% p.a. in any future agreements. That way, the client can see that listening to architects can sometimes be as dangerous and expensive as listening to lawyers.

I once had to withhold £20,000 on a building, not because I had listened to an architect, but because the work was incomplete in one minor detail. A week later it was fixed and we transferred the money. If an architect had tried to justify a supervision fee by writing in a six-month withholding clause for debugging, that would have cost me an extra £2,500 (plus whatever I would have wasted on the architect!)

 

[Darren_Ssc]

2 negotiate a slightly lower retention

I was thinking this is possibly the best way out for the OP. Maybe explain his normal terms of business are acceptable to other clients but he understands the concerns and, maybe, half the amount would be more agreeable in these difficult times?

Problem being, it isn't going to be too hard to justify a defects claim for the full amount if he gets a bit too pushy.

 

[prophet01]

@cookiemonster99
Without wishing to sound judgemental, my credentials being a 35+ year construction industry professional encompassing administration of multi-million pound contracts, I'm astounded that you, as a "national building/roofing contractor", entered into an agreement to undertake works to such a high value as £195,000 without having in place a legally compliant, recognised form of construction contract.

Now, that having been said, on the reasonable assumption that the roofing work you undertook is accepted as being a 'construction operation' your 'agreement' with the client, whatever it was, is automatically subject to the requirements of the Housing Grants, Construction and Regeneration Act Part II - Construction Contracts

Essentially this Act's requirements trumps any non-complaint written contract. If there is no compliant contract in place then the Scheme for Construction Contracts automatically applies.

The HGCRA strictly regulates the procedures and timescales surrounding both payments to contractors and the withholding of payments to contractors. It also confers the right, under Section 108, for either party to refer any dispute for Adjudication - a fast-track, nominally 28 day, dispute resolution process.

Further, if they haven't complied with the requirements in respect of notifying the withholding of payments, you are automatically entitled to the full payment which you notified.

I have to say, I'd really have expected you to know all of this.

 

[The Byre]

And in Scotlandshire, the builder can under certain circumstances even place a lien on the building in cases of non-payment or incomplete payment.

I consider the advice to just 'suck-it-up' somewhat misplaced!

 

[Bob Morgan]

My first question of the Client, would be "Why was no Retention Sum held on previous payments?" The Retention Sum accumulates during the course of the Contract - Not withheld as a Lump Sum on the Final Payment!

 

[Interestedobserver]

In this instance - isnt the client being somehwat unreasonable by making the supplier wait many months before they can complete the snagging and get paid?

That's the part I would take issue with

My other question would be is there potentially more work to be had from this client in the future? Thus it's not worth a fallout?

 

[Michael Loveridge]

Legally there is no justification for the retention except in respect of the minor defects you've accepted. In the absence of a contract payment is due on completion of the work / presentation of the invoice.

You would therefore be quite entitled to sue them for the balance. To the extent there were any defects they would have to itemise them and counterclaim them.

However, the hassle factor would be high, and for such a relatively small amount it would probably be disproportionate. I would therefore think a firmly worded letter, pointing out that there are no contractual terms allowing a retention but offering, say, a £500 allowance if payment is made within 7 days may produce a result. You should head the letter / email `without prejudice'.

If that doesn't work then follow up with a formal demand letter, threatening legal action. I'm assuming it's a business customer ( a sole trader doesn't count as a business customer) as if it's a private individual you'll have to comply with the misery of the Pre-Action Protocol For Debt Claims.

But like the other poster I'm astonished that you would do a £195k job without even a basic written contract, and maybe this was the wake-up call you needed.

 

[cookiemonster99]

We offered a smaller retention of £1500 until we could come back to do the little snags but we were essentially told to shut up and count ourselves lucky they didn’t retain more in a nicely worded email.

I have had another contractor on site who has inspected our work and some of it has been damaged by deliveries being made on site with lorries and large vehicles - we believe the client is waiting for all work to be completed elsewhere on site and have us back in two months and expect us to put the damage right in exchange for the remaining balance.

I will be forcing the issue this week by insisting we will be coming to site to rectify the outlined snags later this week like it or not. Anything damaged can be quoted for to put right if they want.

Question - if they still take the line of No you cannot come back for two months, can we assume we won’t be paid and write the balance off? This is in the back of our minds and by calling them out as having not paid the bill they no longer have any warranties for the different works

 

[japancool]

You could always use moneyclaimonline.

 

[prophet01]

@cookiemonster99
I must admit to some surprise that you've not responded to my post #18 yet you continue to seek advice on what you should do.

Is there any reason that the company you work for don't wish to utilise the "right tools for the job" as provided by the HGCRA. To be frank you're sounding more and more like a cowboy outfit.

What actually is your postion within this company which you regularly refer to as "we"?

 

[Darren_Ssc]

I have had another contractor on site who has inspected our work and some of it has been damaged by deliveries being made on site with lorries and large vehicles - we believe the client is waiting for all work to be completed elsewhere on site and have us back in two months and expect us to put the damage right in exchange for the remaining balance.

I will be forcing the issue this week by insisting we will be coming to site to rectify the outlined snags later this week like it or not. Anything damaged can be quoted for to put right if they want.

You are within your rights to claim damages against another contractor or supplier who damages your work or who impedes the progress of your own work. Again, this is common practice and it should be something you pursue activeley from the start to finish of every job.

Some contractors may have a cosy realationship with the QS or architect that you are unaware of - this is how you get 'busted'.

You are now not on site so any claims against you or damage to work will need to be evidenced.

 

[Paul Kelly ICHYB]

"They are having other works done to a different part of the property and this is being completed before we return..."

You're being set up, in case these contractors screw up!

 

[OldWelshGuy]

I agree and disagree with some statements here however a 3% retention on a contract where no other snagging issues have been found to date seems unfair.

As stated one party can't unilaterally impose a condition on the contract.

At the very least I would now demand a contract be imposed for the retention and snagging works with a maximum time period, and to protect yourself, the money is to be held by a solicitor or in Escrow.

That said it all depends as to whether or not you wish to deal with the client again.

The simple answer is to sit down with them and try to work it out, ask them what they are basing the £6k figure on, and if they are unable to give a satisfactory answer then tell them you will at best be charging the statutory late payment interest, and at worse, commencing court action.