How To Be A Successful Sub-Contractor

If you’re working as a sub-contractor in New Zealand, it’s crucial to protect yourself and understand your rights. Just like any other business, you may encounter obstacles that can hinder your ability to do what you love – from managing contracts and resolving disputes with the head contractor, to facing delayed or non-payment for your services.

Implementing proper processes can safeguard you from these issues in the future.

In this article, we’ll guide you through essential steps to prepare for potential challenges as a sub-contractor in New Zealand.

Do Your Research

Conducting thorough background research before entering into any agreement is one of the best ways to protect your interests and avoid unreliable business dealings.

What Questions Should You Ask?

Key details to inquire about from the head contractor include:

• Their New Zealand Business Number (NZBN) – this confirms they are a registered entity;
• Their registered business name;
• Any relevant licences they hold, including the licence number.

Legitimate businesses should have no issue providing this information or answering any related questions you may have.

How Do You Verify Information Given To You?

After receiving business details from the head contractor, it’s wise to verify them. You can check the New Zealand Companies Office registers here.

The Companies Office registers can help you:

• Confirm if the company and/or business name is registered by searching the Companies Register;
• Identify the key officeholders;
• Check if the head contractor or their company has been involved in any legal proceedings or insolvency;
• Ensure that the head contractor and/or their company is not prohibited from operating.

However, verifying a business’s details doesn’t guarantee they are reliable partners.

How Can This Information Help You?

Obtaining information about a head contractor is one step; using it to assess potential risks is another. Below is a guide to interpreting the information you gather:

Business Name

Understanding how long a company has operated under its current business name can indicate its stability.

Company Status

It’s generally safer to work with a registered company. If a company is in liquidation or receivership, it may be facing financial difficulties, and you should proceed with caution.

A deregistered company cannot legally operate.

Company Directors And Officers

Examining how long directors or officers have been with the company can help you gauge its stability. Frequent changes in management could signal internal issues.

Be cautious if someone with apparent managerial power isn’t listed as a director. Further inquiries to confirm their authority are prudent, especially to ensure they haven’t been disqualified or declared bankrupt.

You can check the Disqualified Directors Register on the Companies Office website to ensure a director hasn’t been disqualified from managing a company.

Conducting a personal name search for the company’s directors or officers can reveal their involvement with other businesses, providing insight into their business background.

Members

Information about a private company’s members can be found through the Companies Office, offering insight into the people behind the business. Public companies are not required to provide this information.

Examining the share capital can indicate the level of confidence and financial commitment the members have in the business.

Did you know you can sign up for free Company Alerts to stay updated on any changes to a company’s status? This can help you monitor changes in administration, insolvency proceedings, and financial document lodgements.

Have A Written Contract In Place

As a sub-contractor, having a written contract, known as a Sub-Contractor Agreement, is essential for protecting your interests in case of disputes or other issues. Ensure you have a signed contract with the head contractor before commencing work.

• Read Thoroughly: Always read the entire Sub-Contractor Agreement before signing. Once signed, you are bound by its terms, whether or not you have fully understood them.

• Negotiations: Use negotiations to establish protections, such as personal guarantees or registering a security interest on the Personal Property Securities Register (PPSR) in New Zealand.

• Dispute Resolution Procedure: Include a clear dispute resolution clause outlining the process for handling late payments, disagreements, or contract termination.

• Make Your Own Calculations: Calculate the job’s cost independently to ensure fair compensation. Record time sheets for services charged on a time basis and consider requesting a deposit.

• Payment Terms: Clearly state the payment terms in the Sub-Contractor Agreement, including the basis for calculating prices.

• Variations To Contract: Request written variations to the contract for any project changes, detailing the adjustments to work, price, or delivery dates.

Dealing With Disputes

A written agreement can prevent disputes by setting clear expectations. However, if disputes arise, attempt to resolve them amicably through alternative dispute resolution (ADR) methods before considering court action.

ADR options include facilitation, mediation, conciliation, and arbitration. Court proceedings should be a last resort due to their cost and time consumption.

Consulting a lawyer can help you understand your options and whether the costs of legal action are justified.

How To Make Sure You Get Paid

Issuing a correct invoice is vital for timely payment. Adhere to invoicing timeframes specified in the Sub-Contractor Agreement, or issue invoices at the end of the month if not stated.

What Does Your Invoice Need to Include?

Ensure your invoice meets tax obligations. If your business is GST-registered, issue a tax invoice with the GST amount for each item. Tax invoices must include:

1. A clear statement that the document is a tax invoice.
2. Your identity and GST number.
3. The date the invoice was issued.
4. A description of the goods and/or services provided, including quantity and price.
5. The GST amount payable.
6. The GST proportion for each item, either as a separate amount or included in the total price.

For sales over $1,000, include the buyer’s identity or GST number on the tax invoice.

Learn more about tax invoices here.

What Can You Do If You Haven’t Been Paid?

If payment is overdue, review your Sub-Contractor Agreement for payment terms and dispute resolution options. Promptly follow up with the head contractor and consider a letter of demand or debt collection agency if necessary. Court action should be a last resort.

Explore your options for debt recovery here.

The Construction Contracts Act 2002 provides a framework for managing payments and resolving disputes in the construction industry, including protection for sub-contractors.

Minimising Your Risk If The Head Contractor Goes Insolvent

The insolvency of a business can jeopardise your payments. To mitigate this risk:

Register A Security Interest

Negotiate the right to register a security interest on the PPSR before signing the Sub-Contractor Agreement. This gives you priority over the property if the head contractor becomes insolvent.

Enforcing your security interest requires notifying the insolvency practitioner and providing documentation. Seek legal advice to navigate the process.

Learn about enforcing security interests here.

Look Out For Warning Signs

Be vigilant for signs of financial difficulty in other companies, such as delayed payments, high staff turnover, or reduced project progress.

Other Legislative Protections

In New Zealand, contractors are protected by legislation such as the Employment Relations Act 2000 and the Independent Contractors Act 2006.

These laws protect against:

• Unjustified dismissal or disadvantage;
• Coercion or pressure not to exercise workplace rights;
• Unfair treatment related to union membership;
• Sham contracting arrangements.

The IC Act also allows you to challenge unfair contracts in court.

Factors considered by the court include the contract terms, bargaining power, undue influence, remuneration compared to employees, and other relevant matters.

Need More Help?

Establishing protections as a sub-contractor is essential. A well-drafted Sub-Contractor Agreement can help resolve disputes and ensure payment.

For assistance with agreements, disputes, security interests, or other legal matters, contact our team of experienced lawyers for a free, no-obligation chat at [email protected] or 0800 002 184.

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