Investor, show your guarantee!

At a time when a major headache for contractors is overdue payment, many have decided to push for a solution. This has led to the drawing up of the controversial 'Payment Guarantees Act' which contractors hope Poland's parliament will pass into law.

The idea behind the Act is to entitle contractors to demand bank guarantees from investors proving that they have sufficient funds to pay for work and pay for it on time. Should a contractor not receive such a guarantee within a given time then the contractor may stop work without any consequences.
There is no official data compiled concerning overdue payments owed to contractors, as the 'victims' are usually unwilling to go on the record and name names. The Hyatt Hotel incident, where the unpaid sub-contractors decided to go public when the contractor didn't pay them, is rare. It is no surprise, therefore, that they have come together as a body to protect their rights.
A construction coalition The draft was submitted to Parliament by a group of MP's led by Zbigniew Janowski of the majority SLD party, after lobbying by individual construction companies, the National Association of Building Employers and the 'Budowlani' (construction workers) trade union (of which Janowski is a member). The head of the Budowlani union, Janusz Zaleski, says the act is a means for them to defend themselves against un-paying developers. ,We are currently in an investors market where the investors, practically by themselves, prepare the agreements and determine the rules and terms of payment. This in particular creates problems for smaller companies which cannot afford to select their clients," says Zaleski. ,The objective of the act is therefore to balance the rights of the contractor and the developer. We don't want to create conflict between the two parties, we want to create a partnership structure."

Bankruptcy
The introduction to the draft reads: ,This phenomenon (of overdue payments) is particularly dangerous for small and medium sized companies which do not have sufficient funds to 'credit' a dishonest customer. For them, a payment delay from a major contract can often lead to bankruptcy". ,What can these companies do when they find out the developer doesn't have any money?" asks Zaleski. ,They can go to court and wait years for the verdict only to find that the when a decision is made the developer no longer exists and there's nobody to claim money from." According to Michal Kubicki of developer Pia Piasecki Inwestycje, however, the act would tip the scales too far in the opposite direction. ,This is an attempt to support general contractors but unfortunately at the expense of developers and investors," he claims. ,If the proposed law came into effect some developers - especially from the residential sector - would go bankrupt. Construction companies would be the winners." Kubicki believes that the very nature of the relationship between the developer and the contractor, in which the contractor is the customer, means that the developer will always have the upper hand in negotiations. Essentially, he says, the contractor can either accept the proposal or not.

A surprising ally
Kubicki has some support from an unlikely source - a contractor. While Andrzej Ubertowski, President of Gdansk-based contractor Polnord, resents the fact that developers sometimes take on contractors while knowing they don't have the money to pay them, believes the advantage enjoyed by developers is just a reality that has to be accepted. ,We function in a free-market, which is self-regulated. So I think - although I say it against myself - that the duty to submit guarantees should not be imposed on private investors. It will only lead to conflict between contractors and developers. I am convinced that if a contractor demands a guarantee from the developer, it will be his last contract with that company. But concerning situations where a contractor works for a developer who represents the state, I think a legal obligation to submit payment guarantees should be imposed. It often happens that in these cases contractors aren't paid."

Bad habits
Janusz Zalewski feels that although everyone benefited from the construction boom over the last decade, some bad habits were picked up as well. ,Contracts were signed which were very favourable to the developer. The biggest invoices were always left till the end when it's difficult time to get back your money. The developer complains and thinks up various ways to avoid payment, often because he doesn't have the money." Despite all the arguments for and against, the proposal is currently only that - a proposal. Critics claim that a major flaw is that the proposal only includes construction companies in its remit, but the problem of non-payment isn't confined only to that sector. This lessens its political clout. ,In the introduction, the authors of the draft law say that the proposed legislation is based on Germany's civil code," says Andrzej Ubertowski. ,But the Germans amended their law to include all business. Over here it's too narrow and so I think the proposal as it stands may have difficulty being passed." Michal Kubicki is more direct. ,I think Parliament has more serious issues to deal with so I don't think it will be taken care of any time soon."