What can a small builder do when domestic clients refuse point blank to pay their bills? I found that the only option was to decide to close my business
We are a very small company, with a turnover of less than £1m a year, but we have traded for 22 years on our professionalism, high standards and open and honest approach in all our dealings with our clients. In that time, we have successfully completed about 1700 projects of all sorts and values without ever advertising. We have secured all our works by recommendations from previous clients, architects, structural engineers and local authority building control officers. I have now decided to close down my business and retire early because my faith in the decency of the British public and the effectiveness of its legal system have been lost.
The problems revolve around two domestic clients. One defaulted on a £26,000 final payment, and despite protracted correspondence between ourselves, our solicitor, the client and their solicitor the client has refused to meet, discuss, mediate or make any attempt whatsoever to resolve and settle this matter, despite their written confirmation of the outstanding debt.
The second client defaulted on a £43,000 final account settlement. Again despite every attempt to seek a solution by mediation and out of court settlement, no resolution has been possible. This couple has refused to discuss the bill with us, meet us or answer our solicitor’s letters.
In both cases our solicitor has advised us that we are unable to sustain the likely legal costs required to recover the sums due to us.
In the lifetime of the company, we have had a small percentage of clients, mostly in recent years, who have queried their final accounts despite being appraised monthly of the continuing charges being levied for additional works instructed by them.
Like most small building businesses, we are paid retrospectively and offer a 2.5% retention to our clients for six months on all works worth more than £9000. When these situations have arisen in the past – despite being completely transparent and open in our valuation calculations – we have had to settle for a negotiated settlement figure that is less than the sum we are due. But when we are faced with long delays in settlement, we are forced to compromise and accept the loss as a commercial risk, almost akin to blackmail.
The result is that the client has a completed project, their property has leapt in value and yet they force the builder into a situation where its only recourse is legal action.
Most small businesses such as ours cannot afford either the time or disruption, let alone the staggering cost, of legal advice, which is often greater than £190 an hour, not counting VAT. So we are forced into accepting the loss.
The two cases outlined are worse than this. In both, the clients have finished projects but simply refuse, without explanation, to settle their accounts. Faced with this, we have sought advice from the prime minister, the secretary of state for trade and industry, the lord chief justice (the only person who did not reply), the chief constable of Hampshire and the heads of all the industry groups that we belong to.
In all cases the answer has been “We are sorry but we cannot help; you must follow the civil litigation route”. The police authority advised us that if we attempted to enter the site to seek the recovery of materials used but not paid for, they would come round and arrest us.
Nobody has been able to help us. The police authority advised us that if we attempted to enter the site to seek the recovery of materials used but not paid for, they would come round and arrest us
No doubt our sense of utter despair is evident in the above, which is why, as a last resort, we wrote to Customs and Excise to ask whether it could bring pressure to bear on our clients, and achieve a resolution that would enable it to recover the VAT due on works carried out. We do not expect much assistance from this direction although we live in hope, but faced with a no-win situation simply because we cannot afford to prosecute these defaulting “cowboy clients” we have tried just about everything else.
We are pleased to record that most of our clients over the years have been decent, honest, hard-working people with whom we have had fantastic relationships, and who have always paid their accounts on time and in full.
Unfortunately the margins for builders have been eaten away by the myriad escalations of costs levied against us and there is no chance to offset these losses, which in the two cases outlined have topped £100,000 in real terms.
We do seriously consider it about time that the media, which constantly throws the tarnished image of the cowboy builder about, looked at the very serious problems caused to the legitimate building companies by these cowboy clients. Industry and government departments must look at ways of properly safeguarding the interests of all parties in a domestic alteration and extension project contract.
In the final words of a senior barrister for an international company specialising in construction matters, whose advice we sought in 2002: “If the lord chief justice himself wrote the contract and witnessed their signature, in the event that they still chose not to pay, there is no other route to follow but civil litigation.”
This is tantamount to an open invitation to the general public to steal goods and services from small construction companies (who, incidentally, employ most of the construction industry’s operatives), safe in the knowledge that they will generally walk away scot free.
Surely it’s about time something was done by someone, somewhere, to redress this situation.
How can Mr Danieli afford to use the law? Email us at email@example.com
Alan Danieli is managing director of AJ Danieli & Son