How do contractors take payments from customers

The most common billing and payment mistakes

Now you, as the client, are specifically made aware of the most frequent errors in billing and payments, because there is hardly any other area where clients and their representatives make so many serious errors. Often such mistakes are fatal and cannot be corrected afterwards, so you will now be made aware of them so that these mistakes never happen again!

You should absolutely avoid the following mistakes:

 

The client does not accept an invitation to joint measurements

According to Section 14 (2) VOB / B, the determinations necessary for billing - i.e. in particular measurements - must be carried out jointly as far as possible. The Federal Court of Justice (BGH) takes the view that the contractor has a claim on a common measurement. Therefore, the client (or his authorized architect / engineer) must respond to an invitation from the contractor for a joint measurement.

If he does not do this, the contractor can take a unilateral measurement. The burden of proof is then reversed: The client must now prove that the measurements taken by the contractor are incorrect. This represents a decisive disadvantage for the client, because normally the contractor has to prove the correctness of his measurements.

This reversal of the burden of proof is always extremely problematic if the correctness of the measurements cannot be checked or cannot be checked without considerable effort (e.g. laying underground lines or cables above a closed false ceiling).

In the worst case, this can lead to the client not being able to prove the incorrectness of the contractor's measurements and ultimately having to pay for services that were actually not provided.

 

The client sends the final invoice back unchecked

Often, clients send final invoices back to the contractor because the prerequisites for final invoicing are allegedly not yet met. The client means that he can dispense with the obligation to pay by simply returning the final invoice.

This is often wrongly done. If, for example, the final invoice is submitted before acceptance, this is not in itself a reason to return the final invoice. The contractor may submit a final invoice as soon as it has completed its services. He does not have to wait for the completed services to be accepted. It is true that the final invoice is only due upon acceptance; However, that does not change the fact that he can submit the invoice before acceptance and the inspection period for the final invoice begins as soon as the invoice is received.

Therefore, the client must also check a final invoice received before acceptance. He does not have to pay it before acceptance. But he still has to check them. If he does not do this, this can lead to two not inconsiderable disadvantages:

  • On the one hand, after the test period has expired, the client loses the objection to the lack of testability (Section 16 Paragraph 3 No. 1 Sentence 3 VOB / B).
  • In addition, after the test period according to VOB / B 2012 has expired, the client is automatically in default of payment (Section 16, Paragraph 5, No. 3, Sentence 3, VOB / B). In this respect, he must pay default interest and any damage caused by default of the contractor (e.g. legal fees).

 

The client only complains about the lack of verifiability of the final invoice after the verification period has expired

If the client is of the opinion that the contractor's final invoice cannot be checked, he must refer to it within the checking period (Section 16 (3) no. 1 sentence 3 VOB / B).

If he does not raise the objection within the verifiability, he cannot refer to it later. Example: A test period of 30 days has been agreed. Only after six weeks does the client complain that the final invoice was submitted without measurements. This no longer matters after the test period has expired. In the end, the client must then check, without taking measurements, whether the billed quantities have actually been provided. That will pose considerable problems for him.

 

The client does not observe the shortened payment deadlines of VOB / B 2012

The word has still not finally got around among clients that the VOB / B 2012 provides for new inspection and payment deadlines for the final invoice. The period is now regularly only 30 days. It is possible to extend it to a total of 60 days (Section 16 Paragraph 3 No. 1 Sentence 1 and 2 VOB / B). However, the extension is dependent on the contractor's consent.

If the client asks late (e.g. only after receipt of the invoice) to extend the test period, the contractor will often not agree to this. The client should prepare for this in good time and include an extension to 60 days in the tender documents. The contractor then ultimately has no choice if he wants the order.

 

The receipt of payment by the contractor is decisive for the timeliness of the payment

To this day, word has not got around that there was a significant change in the legal situation with regard to payment deadlines as early as 2008. According to the previous case law of the Federal Court of Justice: If the client made the payment on the last day of the payment period at the latest, it was still on time. In particular, it was sufficient to hand over the transfer form to the bank on the last day of the discount period or to order a payment online.

However, the European Court of Justice (ECJ) decided in 2008 that this case law of the BGH is not compatible with (higher-ranking) European law. In the meantime, the VOB / B also contains a corresponding clarification in Section 16 Paragraph 5 No. 3 Sentence 3 VOB / B. Then the following applies:

Payment is only made on time if payment is received by the contractor on the last day of the deadline at the latest comes in.

This has significant consequences for cash discount deductions in particular. These will only be justified if the payment is actually received by the contractor within the discount period. If the client pays too late, he completely loses his right to discount.

  • Contractually stipulate a discount agreement
  • How does a due date become arrears?

 

The client does not differentiate between verifiability and correctness of the content of an invoice

It happens again and again that clients (or their authorized representatives) send invoices back as not verifiable because they cannot verify them.

It should be noted, however, that the invoice cannot be checked if the lack of verifiability is due to an incomprehensible account. On the other hand, actual difficulties in auditing do not affect auditability. The following example: The contractor is to carry out demolition work. By naming specific axes and specific dimensions, he set out where he wanted which components to be torn down. The client thinks that he cannot check the invoice because he does not know whether the components were actually originally available in the billed quantity.

Here the client does not raise the objection of insufficient verifiability, but at most questions the correctness of the invoice. The verifiability would only be affected if the client could not have inferred from the invoice which work the contractor wants to have performed or invoiced (example: he does not specify any axes or the like). But that's not the point here, but rather whether the components were originally there at all. That is a question of the correctness of the invoice.

This means: In order for an invoice to be verifiable, it is sufficient if the contractor clearly explains what services he wants to have provided. Whether the services were actually provided is a question of the correctness of the content.

The distinction between verifiability and correctness of the content of an invoice plays a role in particular with regard to the verification period: As already explained above, the client must always refer to any lack of verifiability within the verification period for the final invoice. The assertion that the invoice is incorrect in terms of content, on the other hand, is not tied to any deadline.

 

When the final invoice is ready, there are no down payment requests

According to established case law, the contractor can no longer demand payments on account at the so-called final invoice maturity. That means:

As soon as the contractor has completed his services, he must submit the final invoice. From this point in time (but at the latest with acceptance), the contractor can no longer demand any payments on account. He can only demand payment on the final invoice (the so-called final payment).

This also means that any advance payment invoices that are still open at the time of completion no longer have to be paid. Rather, the contractor has to switch to the final invoice and settle the unpaid wages there. Accordingly, when the final invoice is ready, the contractor cannot demand any interest for an advance invoice that has not yet been paid at this point in time. Interest can only be claimed for the past.

 

Example:

The client was in arrears with the payment of an advance invoice on October 1st, 2014. On November 1, 2014, the contractor's construction work will be completed and accepted. For the open partial invoice, the contractor can demand interest for the period from October 1st to October 30th, 2014. But not for the period after that, because when the final invoice was then ready, the right to payment of partial invoices ended. The contractor can only request further payments after the final invoice has been submitted and the relevant payment deadline has expired.

 

The right to a builder safety is an extremely sharp sword

The building contractor can (except from the public sector and private house builders) generally demand security for his remuneration claims (Section 648a BGB). The client should never underestimate a corresponding requirement. If he does not provide the security, the contractor can sue for security, stop the work or terminate the contract.

Last but not least, the impending termination of the contract is usually extremely dangerous for the client. This for the following reasons: If the termination occurs during the construction phase, the client must of course pay for the services already provided. But he also owes a considerable part of the remuneration for the services not provided (due to the termination). In principle, the contractor can invoice the full agreed remuneration and only needs to be credited with saved expenses and filling orders.

But even after the corresponding deductions have been made, the contractor is then regularly entitled to a remuneration component in the range of around 1/3 to even 2/3 of the originally agreed remuneration. In extreme cases, this can mean that the client still has to pay a good portion of the remuneration for a construction work that has not actually been performed.

It is therefore imperative to respond to requests for security in accordance with Section 648a of the German Civil Code (BGB). Either the security is provided or the client should in any case enter into talks or negotiations with the contractor. If necessary, the contractor can be dissuaded from his security request if he is met elsewhere.

 

Securities for the client must be agreed

Many clients assume that simply by concluding a construction contract or simply by including VOB / B in the construction contract, the right to security for the fulfillment of the contract or the guarantee already exists. However, this is wrong.

Only the consumer has an automatic (statutory) right to a security deposit (Section 632a (3) BGB). In contrast, all other clients (in particular the public sector and private-sector clients) have no automatic / statutory right to security, neither with regard to the fulfillment of the contract nor the guarantee.

A contract performance or warranty retention is only possible with such clients if this has been expressly agreed in the construction contract. VOB / B does not change anything about that. This namely does not itself stipulate an obligation to provide a security, but only contains provisions for the event that a security has been agreed. This is clear from the wording of Section 17 (1) No. 1 VOB / B: "If security has been agreed, ..."

 

Tip Note for practice:

  • The client should exclude the obligation to pay the security deposit into a blocked account. Otherwise, he runs the risk of losing the security deposit if the contractor unsuccessfully sets a deadline for paying the security deposit into a blocked account (cf. § 17 Paragraph 6 No. 3 VOB / B).
  • In addition, the time of return should also be regulated for security purposes. This is particularly important with regard to Section 17 (8) No. 2 VOB / B. Unless otherwise agreed in the construction contract, the client must return the guarantee security for a VOB / B contract after two years.
  • That is true also thenif a much longer warranty period (e.g. four or five years) has been agreed. The client therefore runs the risk of having to return the guarantee security after two years, even with a four or five year warranty period. In his own interest, he should definitely stipulate otherwise in the construction contract. It should be made clear there that the warranty security is to be provided for the duration of the warranty period.

 

The final payment declaration has hardly any practical significance

The VOB / B provides in Section 16 Paragraph 3 No. 2 to No. 6 the possibility of a so-called final payment declaration. Thereafter, the contractor must object to a final payment not accepted by him, otherwise he loses further claims. Here is an example: The contractor has a final invoice in the amount of € 30,000 The client has reduced this to an amount of € 20,000: He issues a proper declaration of final payment and announces that the final payment will be € 20,000, but no more. If the contractor does not declare a reservation in due time (or does not justify it in due time), additional claims are excluded. The contractor can then no longer demand payment in excess of € 20,000. This applies even if his invoice was originally entitled to the full amount. Just by the Deadline further claims (in the example at least € 10,000) are excluded.

In practice, however, the BGH significantly invalidated the final payment declaration. He is of the opinion that the client can only rely on a final payment declaration if he otherwise includes the VOB in the construction contractwithout any change has agreed. The prerequisite for the exclusion of additional claims is therefore that the VOB has been agreed "as a whole".

Today, the VOB / B is only agreed "as a whole" in very rare exceptional cases and thus completely unchanged. It is now common - also for public sector contracts - for the client to provide additional contractual conditions that contain deviations from the VOB / B. Written form clauses for supplements or hourly wage payments are particularly conceivable here. Many clients also exclude the obligation to pay into a blocked account as part of the agreement of a security deposit. The deadline for returning the guarantee security (Section 17 (8) No. 2 VOB / B) is often extended from two to four or even five years. According to a widespread opinion, the extension of the warranty period to five years should also represent a deviation from the VOB / B.

Author: Markus Fiedler (lawyer Markus Fiedler. Specialist for construction and architectural law. Partner of the Dieckert law firm. Areas of activity: drafting engineering and construction contracts, legal advice during construction, representation in court. Lecturer for building law training. Editor of the works "BGB and VOB for craftsmen and building contractors "and" Practical Guide for Construction Management and Object Monitoring ".)