What is a main contractor's discount, and should I agree to it?
A main contractor's discount is a percentage taken off every payment to you, so agree to it only if it is already in your price.
Updated: . By Jack Butler-Kettle, Construction Claims Consultant.
The answer
It is often written as MCD, or as a cash discount, and is often 2.5 per cent. It began as a discount for paying on time. Some subcontracts still allow it only when you are paid by the final date for payment. Others take it from every payment, however late. Read the clause to see which you have. Where the discount depends on paying on time, it should not be taken from a late payment. Before you sign, ask for the discount to be removed, or limited to payments made on time. If it stays, add it to your price. To keep your net price after a 2.5 per cent discount, add one thirty-ninth to it. Taking 2.5 per cent off the higher figure brings you back to your price.
Example
Illustrative example. The scenario and figures are invented.
The facts
A plastering subcontractor prices a package at £240,000. The subcontract takes a 2.5 per cent main contractor's discount from every payment, whether it is made on time or not.
What happens
- The subcontractor works out the cost: 2.5 per cent of £240,000 is £6,000 over the job.
- It asks for the discount to apply only to payments made by the final date for payment. The main contractor refuses.
- It adds one thirty-ninth of its price, £6,154, making the subcontract sum £246,154.
The discount priced in
| Item | Amount |
|---|---|
| Price before the discount | £240,000 |
| One thirty-ninth added | £6,154 |
| Subcontract sum | £246,154 |
| Discount at 2.5 per cent | £6,154 |
| Received after the discount | £240,000 |
The outcome
After the discount, the subcontractor still receives its £240,000 price. Without the adjustment, the £6,000 would have come out of its margin.
To have the discount and every other deduction in the subcontract found and priced before you sign, see our Pre-Signing Contract Review service.