Subby Bashing: How To Avoid The Trap

June 9, 2023 / Business Tips

The construction industry is not an easy one to work in, especially for small enterprises and sole traders. It is an industry that demands a significant amount of effort from those that work within it, and can be quite competitive in some cases. Unfortunately, some companies can take this competitiveness to an unpleasant level, attempting to bully and browbeat smaller companies and subcontractors who often have little means to fight back. Falling victim to this can severely hamper a subcontractor’s cash flow, especially if multiple instances occur. This underhanded practice is known as subby bashing.

In this article, Clarke Bell will break down what subby bashing is, how you can avoid falling prey to this practice, and what you can do if you are the victim.

What is subby bashing?

Subby bashing is a problem that many subcontractors face in the construction industry. The term refers to when a contractor outsources a part of a project to a subcontractor, but purposefully withholds some or all of a payment to said subcontractor for dubious reasons. This is usually done as a means of recovering margins on a project that may not have been as profitable as first expected, or simply to make more money overall. Unscrupulous contractors may do this because they believe the subcontractor cannot or will not put up any resistance. Subby bashing can seriously impact a subcontractor’s cash flow, and the practice is estimated to have cost SMEs in the U.K. billions of pounds.

How contractors engage in subby bashing

Contractors that engage in subby bashing will typically attempt to use one or more of several methods to withhold payment. Oftentimes, contractors will make false damage claims to justify withholding a part of the payment, or call upon certain clauses in their contract that allow them to make a late payment, or deduct money from the total. In other cases, contractors will simply hold onto payments for as long as they can, sometimes even attempting to negotiate with the subcontractor to accept a “ransom deal”. This deal will essentially aim to draw concessions out of a subcontractor, using the payment they are owed as leverage. Needless to say, this is a deeply underhanded practice, one that often crosses the line into illegality.

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How can I avoid subby bashing?

If you are a subcontractor, prevention is truly better than the cure when it comes to subby bashing. There are a few things you can do to play it safe, lowering the risk that a larger firm comes along and tries to bully yours out of the industry. While it might seem like you’re allowing these larger firms to get away with what they’re doing, staying out of their sights will allow your company to grow without interference.

The first method to decrease the risk of falling prey to subby bashing is to simply avoid putting all your eggs in one basket. Having one large contract may sound great for your company, but it could spell serious trouble if something goes wrong. Instead, taking on a wide array of contracts greatly reduces the risk your company is exposed to, both to subby bashing and otherwise. If something goes awry with one contract, your company will have several more to fall back on, reducing the strain on your cash flow.

Contracts that suit company size

Secondly, it’s a good idea to focus only on contracts that suit the size of your company. Again, large contracts can be quite appealing, given the substantial payment they can offer, but it is a risk. Taking on small contracts as a small company ensures you aren’t overextending, and keeps you from drawing the ire of any would-be subby bashers.

Lastly, it can be a good idea to avoid taking any contracts that belong to larger companies. This follows on from the previous risk-aversion tactic, as taking contracts that match your company’s size can help you avoid falling victim to subby bashing. Small companies will not have the resources nor the will to attempt it, while larger companies will likely not attempt to subby bash a company of roughly equal size. Subby bashing can be thought of as an opportunistic practice, meaning if you avoid looking like a vulnerable target, you aren’t likely to fall victim.

What you can do if your company falls victim to subby bashing

Despite taking precautions, subby bashing can still happen. If your company is made a target, it is important that you know what your options are as quickly as possible.

The first option you have is to fight the attempt at subby bashing. These claims are sometimes legally dubious, and so can be contested in court to receive payment in full. However, this will cost your company considerably in legal fees, and is the primary reason why many small companies do not make any objections. As unfortunate as it is, this is not likely to be an option, and you will have to consider alternatives.

Creditors’ Voluntary Liquidation (CVL)

In our experience, one of the best options for dealing with subby bashing is to place your company into a Creditors’ Voluntary Liquidation (CVL). It isn’t an easy decision to make, to say the least, but it will help you to get through the subby bashing without taking too much damage. By using a CVL, you will avoid facing financial ruin while also demonstrating a willingness to act in your creditors’ best interests.

This will protect you from accusations of director misconduct, which will bring its own slate of problems to you and your company. Though you will be closing your company, you will fare better in the long run compared to directors that struggle on in vain, as they expose themselves to the risk of soured relations with their creditors, who may serve the company with a winding-up petition to recover their money. If you would like to know more about Creditors’ Voluntary Liquidations, read our complete guide to the process.

Company Voluntary Arrangement (CVA)

Another potential solution to dealing with the issues caused by subby bashing is to enter your company into a Company Voluntary Arrangement (CVA). This option falls into the same category as the first, in that it is far easier said than done. A CVA involves negotiating with creditors in order to reach a new loan agreement favourable to both parties. This allows the company to continue operating as normal, while creditors can expect payment in full, though it might be at a later date than initially anticipated. However, while this is a viable option in some circumstances, it is rarely an option for victims of subby bashing. Creditors get very little out of the deal, and the company is often seen as a risk not worth investing in. As such, there is little chance of reaching a new agreement.

Let Clarke Bell help

If your company is facing serious cash flow problems, don’t struggle alone; let Clarke Bell help. We have more than 28 years of experience in helping companies find solutions to their financial problems, whether it be liquidation or otherwise. Don’t hesitate to contact us today for a free, no-obligation consultation and find out exactly what we can do for you.