I had a meeting last week with an earthworks company, and one of their comments was that I don’t need terms of trade or to be a secured creditor because I only deal with large construction companies! My response was, “remember Mainzeal, Ebert, Orange H, weren’t they also large construction companies? Being a small supplier to a large company doesn’t make you safer it simply makes you part of a larger group, be that a large group that gets paid or doesn’t get paid remains to be seen.
The other main risk I have seen with small subcontractors working exclusively with one large client on a large project is that to secure the work, there are often multiple tenders or bids. To have a good chance of success amongst many competitors, the bids are often at a very low margin with the hope that the quantity of work will make up for the lower margin. In my experience, a low margin is a low margin irrespective of the job size. With it comes the risk of unexpected costs and unforeseen difficulties, making a low margin situation a no margin situation.
Another is that many of the subcontractor agreements that the large companies have the subcontractors sign are blatantly one-sided and because the company may have done hundreds of these types of projects, you better believe that every single clause in the contract is there to protect the company from loss and is based on something that does and has happened. Loss never disappears, it is always experienced by someone, and these companies hire professionals whose entire role is to ensure that it is not the company.
A few months ago, I read this clause in a subcontractor agreement that a client had been asked to sign ” the contractor agrees that they will not increase the quoted price irrespective of changes made to plans, specifications or requirements”. Agreeing to this would be ill-advised and could be financial suicide. Now I’m not saying that just because a construction company is large, they are in some way unethical or predatory, but in a situation where something unforeseen happens that impacts the potential profit of a job, it is essential that both parties are on the bus, not one driving and one underneath. When one of the largest and oldest companies in New Zealand history can lose more than $100m on a single job, it shows that it can happen to anyone.
Entering into unsecured, unequal agreements to get the work is similar to playing rugby against a team when only one of you has a set of goalposts. They also have the referee on the payroll or getting married, and only one party writes the vows (goodness, only knows what I would have agreed to if my wife wrote our vows!). If the only difference I ever make to a business is making them a secured creditor and helping them enter more equal contractual relationships, I would consider my involvement a success.
