Exclusive letters seen by B&E suggest housebuilders have changes their tact in the current wave of cost cutting. B&E reports.

A RULING in February that Barratt Homes pay back deducted sums to glazing firm Southern Glass Services (SGS) couldn’t have been more timely, after major housebuilders sent letters to subcontractors to impose price reductions on existing and future contracts. But what are the chances they will get away with squeezing their suppliers?

A judge last month ordered Barratt to pay approximately £36,000 after the company took a 3% discount from SGS.

“Somebody has made that very brave step to say, ‘Hang on, I’m not having this.’” says Suzannah Nichol, chief executive of the National Specialist Contractors Council (NSCC). “It is giving a very clear message to subcontractors that if this has happened to you, you can now do something about it.”

Bullying tactics
PJ English Associates director Peter English represented SGS. He says his practice has
subsequently taken on 16 subcontractors who feel they have a case for adjudication against some of the biggest names in the housebuilding sector.

Since the start of the year, major housebuilders have been dishing out letters to suppliers “requesting” in some cases, and “introducing” in others, price reductions on existing and outstanding works.

The legal position couldn’t be clearer, says Rudi Klein, chief executive of the Specialist Engineering Group. “If there are already contractual arrangements in place where a price has been agreed, you cannot unilaterally reduce the price.”

However, Taylor Wimpey (Scotland) wrote to its subcontractors in January declaring that it would be “introducing a 5% reduction in price on all outstanding works on existing orders as well as future orders placed after 2 January 2008.”

Barratt (Coventry), too, wrote to its subcontractors in January to say it would extend a 3% discount “to all current and existing subcontract orders with immediate effect”.

“The only basis you can impose a deduction,” says Klein, “is by agreement by the other side.”

But Nichol warns that the wording can be very subtle. “‘Existing sites’ doesn’t necessarily mean ‘existing contracts’. It is very clever wording.”

The NSCC is asking all members to check their contracts and payments made over the last few years. However, Nichol says: “This is not going to happen in a week; it’s not a quick thing to do.”

New approaches
But are housebuilders prepared to change their positions?

A spokesman for Taylor Wimpey confirmed it is looking for a 5% reduction in costs but told B&E it will honour existing contracts. He said: “Existing contracts will be respected. However we will, by mutual agreement, seek to renegotiate existing and future agreements.”

Barratt’s has adopted something of an impenetrable position. Further to its earlier statement to its subcontractors, the company told B&E the letters refer to work going forward and not for retrospective work carried out.

Nichol says most contractors are already working on the slimmest of margins. “Their main expenses are labour and materials,” she says. “Their average profit margin is approximately 2.5% and their materials costs are going up. Most of their investment goes out to the people that do the work onsite, so they don’t have anywhere to take the 5% from.”

However, housebuilders are still putting pressure on subbies to agree to discounts. One housebuilder said: “If the suppliers don’t reach an agreed price, then we’ll go to another supplier. This is free market economics.”

Nichol says housebuilders differ in their approach from sector to sector. “In Scotland I’ve got roofing contractors who are receiving letters from Taylor Wimpey and I’ve got flooring contractors who are working for the same main contractor and not receiving the letters. Whether they are picking off their trades, I don’t know.”

English claims Barratt Homes potentially faces three separate adjudication charges, ranging from £4,000 to £80,000. A Barratt spokesman denied the allegation, although he added: “If we are presented with any claims, we will consider them on their merits.”

“As long as you write to the housebuilders in protest every time they deduct money illegally, and total it up at the end of the contract, we can go to adjudication and get your money back,” English says.

The coming months will prove highly significant to see if any subbies follow the successful action of SGS. “Some are concerned they might be upsetting their client for future work,” says Nichol, “but they are entitled to that money. There is no upsetting going on. This is a business relationship.”

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