The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas Society of Engineers (BSE) president yesterday said Cavalier Construction’s collapse has again exposed the “critical” need to end a 25-year wait for construction industry lien laws.

Quentin Knowles told Tribune Business that such legislation, if enacted and properly enforced, would protect all Bahamian sub-contractors from the ever-present risk that they will not be fully compensated for their work.

Disclosing that virtually all sub-contractors have “a horror story or two” to tell, he said they were too often “left holding the bag” in an industry where thin margins leave little room for error in pricing and executing jobs.

Mr Knowles, in particular, cited “the games” that can be played with the final ten percent due to sub-contractors. This is typically retained by the general contractor, or project management firm, that hired them as insurance against shoddy workmanship and failure to perform - problems that only become apparent once a project is completed.

He revealed, though, that the ten percent retention can become a tempting target for a general contractor/project manager to “dip into” if the development runs into problems or they are likely to lose money on it. Should that happen, Mr Knowles said sub-contractors were ill-placed to complain as they would simply be denied work on future projects by whoever had hired them.

With the Bahamian court system typically too expensive and time-consuming as a means of redress, Mr Knowles renewed calls for The Bahamas to pass construction lien laws that have been made since the mid-1990s when the first Ingraham administration was in office.

Confirming that he has seen drafts of such proposed legislation, Mr Knowles said it was likely being resisted by developers and construction project financiers since it would place the “onus” on them to ensure all sub-contractors and workers were fully paid and compensated.

He explained that sub-contractors would be enabled by such laws to place liens on properties they helped construct, and only release them via a signed “waiver” to developers/funders once they were paid. Until that happened, Mr Knowles said Bahamian sub-contractors would always be exposed to effectively funding such projects themselves as a result of not being paid.

He argued that Cavalier Construction’s decision to cease trading last week, and appoint a liquidator to wind-up its affairs and those of affiliate Bobcat Bahamas, had brought the issue to prominence yet again amid concerns that the 64 year-old contractor owed significant sums to sub-contractors that had worked for it on the Princess Margaret Hospital’s Critical Care Block and other projects.

Those sub-contractors, as reported by Tribune Business earlier this week, will have to sit in the Cavalier creditors queue behind the secured lender (likely one of the Canadian-owned banks), the Government and employees to claim what they are owed. They will likely receive cents on the dollar at most.

Arguing that construction lien laws would have prevented such a situation occurring, Mr Knowles told Tribune Business: “While it is disheartening to see such a company fade away, and the effects such a closing will have on the families that depend on it, it is very disturbing to see the amount of money it is being claimed Cavalier potentially still owes its sub-contractors on the Critical Care Block project.

“Unfortunately, in far too many instances this circumstance - the sub-contractors left holding the bag - is par for the course. While it is not every day that one sees a Cavalier go out of business, sub-contractors not being fully paid what they are owed or if at all by general contractors is a common occurrence. Lord knows it: We’ve had our fair share of being told this is what we are going to pay you, take it or leave it.”

Describing it as “a huge problem” in the Bahamian construction industry, Mr Knowles added: “Just ask any sub-contractor and they’ll give you a horror story or two. This is where construction lien laws would substantially assist and practically eliminate the problem.

“A group of us sub-contractors lobbied the then-government over 20 years ago to enact such legislation. In fact, they said that it was a good idea and supported it. They even prepared a draft Construction Lien Law Bill, but nothing happened.

“Others tell us that you don’t need lien laws to ensure you are paid. There is always the court system, they say. But anyone who has ever interacted with the civil court system in this country will tell you that it has effectively become an institution that is only barely practical for those who have lots of money and lots of time, both of which unpaid sub-contractors don’t have,” he continued.

“I call on the Government to use this unfortunate situation as an impetus to enact construction lien law legislation ASAP, and do not just tell us it’s a wonderful idea and that it is an essential part of a well-ordered society, as one former Attorney General so eloquently put it.

“While there are several major structural issues in construction in this country - the closing of Taylor Industries and Cavalier clearly demonstrates that - I believe these are just the first of several that will close. Solving this problem would go a long way to cleaning up the industry.”

Mr Knowles told Tribune Business that the construction industry’s business model, based on thin margins of 10 percent or often less, exacerbated the difficulties many sub-contractors experienced in obtaining full, timely payments from those who hired them.

“The margins are so very tight in the construction industry that every company has to go in with very, very low prices and no room for error,” he explained. “Sometimes errors do happen, you can have very big errors and things can go south very quickly.

“Because the contractor holds back 10 percent of the money they pay their sub-contractors it becomes very tempting. If there are problems or they have lost money on a project it becomes tempting to tap into that even though it’s not their money. They play games a lot of the time.

“With lien laws in a properly set-up regime you can claim a lien on the building or property you participated in or invested in. Owners, if they are aware of that, to protect themselves against liens on the property by requesting lien waivers. But, if you are not getting paid, you do not give the lien waiver,” Mr Knowles explained.

“The onus is on the owner to make sure the sub-contractors are paid. It puts the onus on people who fund the project as banks and mortgage companies are highly motivated to make sure there are no liens” impacting their security.

Mr Knowles said such a system worked well in North America, but suggested that developer and financier interests were preventing its implementation in The Bahamas. He recalled how himself and a group of sub-contractors, including his father who has now been retired for 27 years, went to the then-government and warned there was “a serious problem” and need for such liens, but all they seemed to receive was “lip service”.

Describing PMH’s Critical Care Block, which has been in operation for seven years, as a “case in point”, Mr Knowles said: “It was a very challenging project, tight deadlines, very complex, and a Bahamian team that pulled it off. The project speaks for itself, but sub-contractors have not been paid what they are owed.”

Calling for construction lien laws to be enacted “in tandem” with the long-awaited contractor licensing system, he added: “If you have to fight to get that last 10 percent you’re funding or financing that project. These people sometimes have to wait years for the 10 percent.

“That has a negative effect on any business, especially one operating on low margins. General contractors, if they’re doing well, tend to get 5-8 percent. It’s a very low margin, high risk field, and as sub-contractors operating in that environment and having to fight for the last 10 percent, it makes it very difficult.”