Today I want to talk about who should buy building materials, customer or tradesman. Lately I came across a case where a tradesman was left short of €3,000 for the building materials he supplied. He has been advised by his solicitor that it will cost as much to pursue the money in the circuit court and that even if he wins the customer may not have the money to pay him. I came across another case where a tradesman accepted a payment from the customer for windows and he paid the money to the window suppliers but they went in liquidation before they supplied the windows. This meant it was now the responsibility of the tradesman to reimburse the customer for their loss. When the tradesman supplies the building materials or appliances there is often some confusion over who is responsible in the event of materials being faulty or where an appliance stops working.
Let’s have a look at the advantages and disadvantages of each:-
Option 1: Tradesman buys the building materials or appliance(s)
1. May avoid delays as the tradesman knows the materials to buy and is used to working with the suppliers
3. Since the tradesman is providing an additional service he can legitimately charge a mark-up on the materials for so doing
1. Higher risk. If the customer doesn’t pay the tradesman is caught for a lot more money than if he was just charging for labour alone.
2. The tradesman takes on additional responsibility when he supplies materials as he is responsible if the materials become faulty in the future. A higher mark-up should reflect the extra responsibility in terms of after sales support as well as additional administration and risk of not getting paid.
3. A self employed tradesman in Ireland doesn’t need to be registered for VAT if their turnover is less than €37,000. However, if they are providing materials as well as labour they will quickly get pushed into a higher turnover which may mean they will have to begin charging VAT for their services. Charging VAT means that they have extra administration costs in calculating and handling the VAT.
1. The customer saves time as the tradesman looks after more of the work
2. The work should be done quicker if the tradesman is sourcing materials that he is used to working with
1. The job costs more money because the tradesman has more work to do.
2. If a problem arises with the materials or appliances in the future the tradesman is responsible for after sales service so if he goes out of business or cannot be contacted there will be problems (this could happen with a hardware store too.)
Option 2: Customer buys the building materials or appliance(s)
1. Tradesman has less risk as they don’t have any money owed for materials and only have to think about collecting money for labour.
2. The tradesman doesn’t have the responsibility of after sales support as it will be the responsibility of the supplier where the customer purchased the materials.
3. A self employed tradesman doesn’t need to be registered for VAT if their turnover is less than €37,000. Therefore, if they can encourage their customers to buy the materials they may be able to stay below this threshold and avoid having to register for VAT.
1. Could cause delays if the customer buys the wrong materials or omits some materials.
3. The tradesman won’t be able to charge a mark-up on the materials (this may not be a disadvantage however as the mark-up seldom covers the extra risk, administration and after sales service required.)
1. If the customer is taking an interest in what is going on and understands what materials are required they will have more control over which materials are used and where they are sourced from.
2. If there is a problem down the line with the materials or the appliances the customer may have more comeback if they are dealing directly with the supplier themselves (That is assuming that the supplier won’t go out of business of course! By the way be careful with purchasing materials and appliances online as the delivery charge is not refundable as I recently discovered when I tried to return a product to Amazon.co.uk. The product cost £7.99 and postage was £32.99 and I would have to pay to return the product myself:( )
1. The customer will spend a lot more time sourcing the materials.
2. It may cause delays or stoppages if materials or appliances are purchased that are of lower quality or if the tradesmen are not used to working with them.
As you can see it is not a straightforward answer. If tradesmen really want to supply the building materials they should try to limit their risk by 1. having a written contract, 2. by documenting and taking photos of the work as it progresses, 3. having the work signed off by a certifier if appropriate, 4. delivering the materials in smaller quantities, 5. using an escrow payment facility.
If customers wish to supply the materials I think they would benefit from doing some research in advance on what materials are required and discuss it with one or more tradesmen to get as much advice as possible. The customer should request a detailed list of materials or appliances from the tradesman and get prices from a number of local suppliers. If a tradesman makes a mistake in his work you would expect him to bare the cost of rectifying it. Likewise if the customer supplies materials that are incorrect and that cause delays or stoppages in the work they should also be prepared to pay the tradesman for any additional work it causes.
I hope you found this article informative and whether you are a tradesman or customer, make sure to agree which materials or appliances are to be purchased in advance with the other party. If you have any other comments or suggestions please enter them in the comments box below.
13th September 2013