DEFERRED PAYMENT PAINTING CONTRACTS FOR STRATA SCHEMES – ARE THEY A GOOD IDEA?
As quantity surveyors with long involvement in preparing sinking fund forecasts, capital works forecasts and maintenance plans for strata complexes, we are frequently asked to comment on the advantages or otherwise of using deferred payment contracts to fund painting work. These contracts are essentially a programme of work comprising the initial paint job, followed by a series of smaller maintenance jobs. The big attraction is the payment scheme. Instead of one lump payment or a series of progress payments leading up to the completion of the work, payments are broken down into smaller portions and spread evenly over a number of years during which follow-up maintenance work is carried out.
The main reason bodies corporate and owners’ corporations consider this type of contract is to solve a funding problem. This sometimes happens because insufficient money has been raised to meet the immediate painting costs. It also occurs when large-scale refurbishment works are planned and the committee is looking for ways to limit contributions. Painting is, of course, one of the largest single expenses to be met in most maintenance cost forecasts.
Whilst it is true that deferred payment contracts with their regular standard annual payments can help to smooth the contributions, they are not cheap. Our quantity surveyors have sighted contracts of this type that are in the order of 100% more expensive than a standard contract. This is unusual but most of these contracts cost significantly more than the standard approach. The reason is they include interest costs into future years that facilitate the deferred payments. The other more potent reason is that competition is frequently limited as there are fewer providers of these services.
Our office is not aware of any legal impediment in funding painting work with these types of contracts, however they should not be relied upon as a long-term solution. We would not recommend, for example, that painting work be allowed for by including a series of contiguous deferred payment contract provisions for the full term of the forecast. This would have the effect of locking in and limiting future decisions relating to the funding of painting work. If a forecast includes allowances for a deferred payment contract, it should also include provision for a standard painting allowance for the period immediately following the end of the programme.
Although committees are sometimes attracted to the smoothing effect of deferred payment contracts, they frequently struggle to understand the value proposition once the work is underway. In the early years when there is a lot of work being undertaken the perception is the contract is providing good value. In later years when far less work is carried out and the annual payments remain about the same, the perception is reversed. For this reason committees frequently do not sign up for a repeat program.
There are of course practical advantages with painting maintenance programs. They can provide cleaning down and touch up work following the initial repaint job that keeps the building looking fresh during the course of the program. We would recommend however, if you are considering this approach that you employ the services of a competent project manager. Most large painting companies employ subcontractors and some are better than others. A project manager who also supervises the work can help to ensure that your committee gets what it pays for.