How do builders actually make money? (It's your money)
Builders make money on the gap between when you get paid and when they do. On a $500k package that gap is about $60,000 of your money, sitting in their account, all job long. Then retention. Then the variations that never got sorted. Multiply it by every trade on the job and that is the builder's working capital: interest free, no security, lent by people who never credit-checked them.
Transcript
Do builders actually make money? From building, from you. Builder's business runs on the gap between the day they pay you and the day they get paid. The subcontract you signed was written to make that gap as big and as long as it possibly can be. Going to show you what the maths looks like on an ordinary job, why the contract looks the way that it does and what you can do about it without losing the work.
Do the numbers. You win a $500k package, 12 months of work, you claim about 42k per month. Do the work in month 1. Claim at the end of month 1. Contract, it says payment in 30 days. Realistically, it's 45 to 60 days the time the payment schedule comes back, the certificate is issued and the money lands in your account. At any given moment, there is roughly one and a half months of work that you've paid for, your materials, your wages, your fuel, and the builder hasn't paid you for yet.
This job that is about $60,000, money in their account every single day. Thing is, it's not in dispute and it's not late, is on time as per the contract and that is its whole design. Add retention, 5% of the contract sum, $25,000, Half of it held until practical completion and the other half held until the end of the defects liability period. Sometimes that can be two to three years after you've left site.
Add the variations you did that never got sorted. $500,000 package, anywhere from 85 to 125k of your money is in the builder's hands at any given time. Multiply that by every trade on the job, 20, maybe 30. Is the builder's working capital, that's how they fund the job. Interest free, no security, lended by people who have never credit checked them. Here's the part most subbies never see.
Spent 4 years on the builder's side across head contracts and subcontract is not a copy of the head contract. It is the head contract with the risk just moved down a level. Payment term is longer than the one the builder gets from their client retention is higher The time bars are shorter our index of real Australian subcontracts, 100% of time bars extinguish a late claim entirely. And that's not it.
97% of subcontracts we analyse also let the builder set off money from a subcontractor from one job onto another. Of it is illegal, most of it is standard. Of it is doing one job, making your money sit in their account as long as legally possible. What do you do? Now you're not going to rewrite the contract but you are going to shrink the gap. Things, each one takes less than an hour.
Claim on every reference date. Day that it falls, not the week after. Day you claim late is another day of float that you're giving to them for free. 2. Ask for the payment term before you sign, after. Can say our terms are 20 days from claim. Now half the builders will say no, but the other half for builders, they'll say fine, whatever, because no one ever asks.
Know your retention trigger and diarise it. Practical completion of your work is a date. Day it is certified, send the release email. Builders I worked for released retention to the subbies who asked and simply sat on it for the ones who never did. A builder is a bank you are the deposit. Only question is how big a deposit you decide to be. My next video I'm going to be talking about the five moves I used on the builder side against subcontractors and what it costs them.
You want to see what your own contract is doing to your cash There's a link down below, free, no account needed and takes about 90 seconds.
General information about Australian subcontracts, not legal advice. Get advice on your own contract and facts.