An all too common occurrence at present is the client not having the full funding in place for a project before construction commences. This results in projects coming to a halt before Practical Completion and all to often the contractor is owed money for work completed and not paid for. 

We all realise there are remedies to this scenario through the JBCC PBA, however if a client has no money and very little fixed assets it is not going to resolve the financial problem of the contractor. Should the contractor do due diligence on the client before signing any contract? There is no provision for this in the JBCC save for the clause that requires the client to issue the contractor with a payment guarantee ( Clause 12.1.1 ). The risk to the contractor and his business is extremely high should all the funding not be in place. The problems are as follows:

• Constraints on cash flow
• Large amounts owed to subcontractors and suppliers
• Inability to acquire goods and services for other projects due to credit being withdrawn
• Resources not being utilised to produce turnover and profit
• Legal expenses in seeking performance in terms of the contract
• Opportunity cost to the company 

An additional argument is that the client may have committed fraud through misrepresentation, due to having signed the contract document knowing full well that the funds for the project were not secure or not in place. 

In future JBCC Principal Building Agreements, provision should be made that requires that full disclosure of the project funding is made by the client / employer to avoid repetition of this problem with the resultant company closures and financial distress.

Ross Stembridge | Building Services Manager