Is this legal? Bullying of small Contractors.

Crushing SMEs

February 3, 2013 by Marie Gervais, PhD. Director, Global Leadership Associates Inc

crush small businessA few days ago I had an unsettling conversation with a business owner whose company provides support services to big players in the oil and gas industry. She told me about client bullying practices that have put her accountant on the verge of a nervous breakdown and have resulted in a 25-30% profit loss to their company.

How widespread is this problem? An internet search revealed more troubling findings. According to The Telegraph on October 12, 2012, small contractors in the UK are moving their operations to Australia because of large construction business bullying. The Australian Business Spectator, reported on June 25, 2012 that a small business commissioner had been appointed to: “provide practical, institutional support lifting small business people out of a subservient contractual relationship with big business”.

Here are some of the “subservient practices” of large players that have become endemic in Canada, USA, Australia and the UK to name but a few countries:

  • Charging fees to tender work.
  • Asking for retroactive discounts for jobs already completed.
  • Stretching payments from 30 days to between 60-90 days and in some cases charging a “penalty” of 20% to small contractors who are paid within 30 days – a lose/lose situation either way.
  • Forcing contractors to post their invoices on the large company website and then charging them a fee for that obligation.

Inc. magazine author Eric Holtzclaw wrote on October 12, 2012, “If my customers aren’t paying me for more than three months, how am I supposed to pay my bills? Small companies are increasingly serving as no-interest banks for big business.”

The problem is so wide-spread in the UK alone 97% of small construction companies reported being bullied into unfair payment contracts and only 5% were paid within 30 days. Describing the problem in Australia, Ken Phillips of the Business Spectator wrote:

“It’s a dysfunctional commercial environment. The commercial trust necessary for business activity is unsupported in the operation of the law. This limits wealth creation capacity and distribution at the base of society.”

Academic documentation of this issue has been taking place for several years already. Yves Fassin wrote in The Journal of Business Ethics(September 2005, Volume 60, Issue 3, pp 265-279) that a host of unfair business practices have become characteristic of “day to day operations” of most large businesses vis-à-vis their stakeholders. His list included: “pressure from stakeholders, short-term tactics, hegemony of financial considerations, ‘juridisation’ of business, and the tyranny of communications” among others.

Healthy competition is necessary to business. But these practices are clearly dysfunctional. If big business is not going to regulate itself until it has forced all small contractors into bankruptcy, why aren’t government and industry associations playing the regulatory role they are supposed to play in these circumstances? The only country that seems to be trying to address the issue at this point is Australia. The strategy includes monitoring, fines and publishing documentation of unethical practices to raise moral outrage. The SME Commission is providing support to SMEs in court and causing the public to lose confidence in offending companies through negative publicity campaigns. I don’t think this is the only answer to the problem, but it is at least a start.

My clients are being subjected to a tyrannical practice that is clearly unethical. And it appears that governments and industry associations combined are too toothless to take the bull by the horns and call a spade a spade.