7 Key Things Sub – Contractors Must Check Before You Sign That Contract!
1 Who Are You Actually Contracting With?
OK, I accept that this sounds really obvious but how much do you actually know about the organisation that you are getting into a contract with? More importantly will they be around to pay you when the time comes?
There will always be other factors to take into account when deciding on whether or not to enter into the contract. Not least of which, will no doubt be your workload at the time. It is obviously much easier to be selective in times of plenty.
Being willing to place an order with you is only one small part of what you should be looking for in a relationship with a customer. A customer that is likely to become insolvent, or who can’t or won’t, pay is worse than no customer at all and a customer who takes too long to pay, makes unreasonable reductions or sets off money unfairly, could turn out to be your worst nightmare!
You cannot rely solely on the apparent size of the customer. Not all large companies pay their debts on time and some national contractors are the worst payers of all.
If you have worked for an organisation before, then you will have a pretty good idea as to whether or not they pay on time or are quick to make deductions or raise set-offs.
However, don’t assume that because the Manchester office of XYZ national contractor is a good payer, the same will apply to the Bristol office. A lot will depend upon the particular circumstances within that company and within each branch. Whether things go well, may come down to your relationship with individuals within an organisation rather than the inherent culture of the organisation itself.
As a minimum, bank and trade references should be followed up. However, I would advocate making as detailed an enquiry as possible from other Specialist Sub-Contractors who have worked for this organisation. Ask about the culture of the organisation and whether or not they are helpful or unhelpful to their sub-contractors in respect of payment.
Ask about individuals involved and whom you can and cannot rely upon. Ask how easy it is to agree interim applications, variations etc and whether or not they are prone to making reductions or set-offs. Most important of all, ask whether or not they always get paid on time.
Don’t be shy about making these enquiries or concerned that making them might cause offence to potential customers. In well run, objective organisations nothing should be further from the truth and reputable companies will respect your professionalism.
2 Scope of the Works
This may sound really obvious but you would be surprised how many disputes I have resolved for Specialist Sub-Contractors where the Sub-Contractor and the Contractor disagreed about the scope of the works included in the contract.
I accept that it is a chore but you neglect this at your peril. Check carefully that what you thought had been agreed during the tender and negotiation pre-contract period, has actually been properly incorporated into the contract.
Check that the Contractor or Client hasn’t added in references to documents or specifications you haven’t seen, and be wary of phrases such as “necessarily implied from”.
I have seen this blatantly used by a Contractor to deliberately add works into my client’s scope that my client had definitely not priced. And at a seminar where I used this example one of the delegates told me about his son who was training to be a QS with one of the major Contractors. His son had told him that he was trained how to use this very technique!
If in doubt go back to the Contractor or Client and make sure the written document properly reflects what has been agreed. You must make it clear in writing to the Contractor exactly what you have priced to do before you start work on site or do design work or anything else that could constitute acceptance. Don’t sign any documents until you are satisfied that they only refer to the scope of works that you have priced.
Time is a tricky little sucker to get right!
First check whether you are going to have one start and finish date or are going to have to complete the work in sections. If the work is to be completed in sections then you need to be especially careful. Make sure the start date and any notice to start period is what you agreed and be wary of large “windows” for starting the works. I have seen clients being asked to agree to a 3 month window for starting the works on a weeks notice!
Make sure the period for carrying out the works is clearly stated and confirms what has been agreed. Do not agree to “work in accordance with the Contractor’s programme” or “as per our site requirements” or any other form of words that Contractors can twist the meaning of and use against you!
If in any doubt get it clarified and agreed before you sign up or start any work.
4 Price and Discount
Trust me I have resolved lots of disputes involving price and discount. It happens all the time, so please don’t let it happen to you. Check that your price has been properly incorporated along with any tender summary or amendments and clarifications that have been agreed. If you are relying on any qualifications in your tender make sure they are not “lost” because of terms like “…the Sub-Contractor acknowledges that all terms and conditions of his quotation are excluded”.
If you negotiated a one off discount on your price to win the job then make sure the contract clearly states that this discount does not apply to the valuation of work instructed as variations. In days gone by (that unfortunately I am old enough to remember) Main Contractor’s Discount was linked to prompt payment. There is no such provision in most modern Standard Form contracts. So if the contract mentions discount make certain you know what it applies to and how it will work in practice.
5 Payment Terms
Again this might sound like an obvious thing to check but you might be surprised how many times this becomes a problem. Make sure that you understand how long the payment period actually is. These days contracts normally refer to a “Due Date” and a “Final Date for Payment”. You also need to be clear about what other events or circumstances have been linked to payment.
21.2.1 The first payment shall be due 30 days after the Sub-Contract Valuation Date next following the date of commencement of the Sub-Contract Works.
21.2.2 Interim payments after the first payment shall be due 30 days after the Sub-Contract Valuation Dates thereafter.
21.2.3 The final date for payment for the first and interim payments shall be 30 days after the date when they become due.
Now, you could be forgiven for having skim read this and thought it’s a 30 day payment period.
What it actually says is that the first payment and the following interim payments shall be due 30 days after the Sub-Contract Valuation Date. That is not due in the sense that it is “due” for payment on that date!
So, the payment becomes “due” 30 days after the Sub-Contract Valuation Date. The final date for payment for the first and interim payments shall be 30 days after the date when they become due.
In other words 30 days plus 30 days is 60 days from the Sub-Contract Valuation Date!
In this particular instance you should also be clear that the contract sets out the Sub-Contract Valuation Dates, because that is what triggers the payment sequence. Make sure that these dates are only a month apart they could quite easily be longer! You should also ensure that the Sub-Contract Valuation Dates go on beyond the end of the planned Sub-Contract Period, and if the works are delayed you should ensure that an extended list of dates is agreed.
6 Design Liability
As Specialist Sub-Contractor you will be liable for any design you provide if that design subsequently proves to be faulty. You need to be very clear that your design liability is restricted to reasonable skill and care, and that the far more onerous standard of fitness for purpose does not arise. Unfortunately it is all too easy to get this wrong!
Similarly, this is one situation where it isn’t necessarily what the contract says, but what the contract doesn’t say that gives rise to the much more onerous standard! If the contract is silent about design liability then your liability will be the far more onerous standard of fitness for purpose.
Why is this so important? Well, fitness for purpose basically means you are guaranteeing that your design will satisfy the end users needs irrespective of what you did or didn’t know about his business and irrespective of what it says in the enquiry or specification.
A major consequence of this onerous liability is that it is highly unlikely that your professional indemnity insurance will reimburse any resultant losses where you have failed to provide the guaranteed result. In other words they will void your cover!
Your obligation to produce a design which is fit for its purpose is an absolute duty independent of negligence. It is a duty which is far greater than that imposed upon a professional designer employed solely to design, as the professional would only be liable if (in the absence of an express provision) he was negligent.
Express provisions to the contrary will obviously negate any implied terms. In other words a specific clause which defines your liability must be incorporated into your contract and that clause must restrict your liability to reasonable skill and care.
The implied obligations of the professional have been developed in the medical and legal professions where a result cannot be guaranteed. The kind of liability that arises when a Specialist Sub-Contractor designs and installs has its root in the law related to sale of goods where the law imposes an obligation to supply goods fit for purpose where the purpose is made known to the seller and the buyer relies upon the seller’s judgement.
Most standard forms of building contracts provide a clear distinction between the duties of the designer and the duties of the builder, so that if a building proves to be faulty because of both design and construction faults the Employer is faced with bringing an action against both the designer and the constructor.
The principle behind a design and build contract is that the Contractor and his Specialist Sub-Contractor are responsible for both design and construction.
The Courts have readily implied the following terms into design and build contracts.
1. That the work will be carried out in a workmanlike manner 2. That materials of good quality will be used 3. That the materials and work (including design) will be reasonably fit for their respective purposes.
Lord Denning M R in Greaves and Co (Contractors) Ltd -v- Baynham Meikle and Partners (1975) said;
“Now, as between the building owners and the Contractors, it is plain that the owners made known to the Contractors the purpose for which the building was required, so as to show that they relied on the Contractor’s skill and judgement. It was, therefore, the duty of the Contractors to see that the finished work was reasonably fit for the purpose for which they knew it was required. It was not merely an obligation to use reasonable care, the Contractors were obliged to ensure that the finished work was reasonably fit for the purpose.”
Lord Denning’s comments were reinforced by the House of Lords in IBA -v- EMI and BICC (1981) where Lord Scarman said;
“In the absence of any term (express or to be implied) negating the obligation, one who contracts to design an article for a purpose made known to him undertakes that the design is reasonably fit for the purpose.”
7 Dispute Resolution!
Last but by no means least you need to know that your rights have not been compromised by Contractors or Clients!
If the contract between you and the Contractor or Client is subject to the Construction Act (The Housing Grants and Construction Act 1996) the contract should have certain provisions which provide some degree of protection. But beware that these have not been negated by the specific words of the contract!
Suspension For Non Payment
Exercising your right to suspend performance is a very effective way to get paid!
The right to suspend may not be exercised unless you have given written notice of your intention to suspend performance. The period of notice is the bit that the Contractors will change to make it more difficult for you. The time period in the Act is 7 days but there is nothing to stop them extending this period to 14, 21 or even 90 days!
Any valid period of suspension automatically confers on you a right to an extension of time under the contract and where the contractual time limit has been set by a date rather than a period the date for completion is deemed to be adjusted automatically.
Having the right to suspend performance for non payment is not a statutory right unless the Act applies, so it is a good idea to ask for such a provision to be included into those contracts where the Act does not apply.
Adjudication is a statutory procedure by which any party to a construction contract has the right to have a dispute decided by an adjudicator. It is intended to be a quick process and it can be cost effective when handled properly.
- It is normally used to obtain payment but most types of dispute can be adjudicated.
- It is a very quick process and the adjudicator must generally decide the dispute in less than 42 days.
- The adjudicator’s decision is temporarily binding and can be enforced by the Courts
But in the vast majority of cases the parties accept the decision as binding.
However, the way that some Contractors put a stop to this very effective remedy is to make you responsible for all the costs!
In Bridgeway Construction Ltd v Tolent Construction Ltd (2000) TCC the issue was whether a provision in an adjudication procedure on the matter of costs was void if it inhibited a party from pursuing the remedies provided by the adjudication process.
The subcontract between Bridgeway and Tolent incorporated the CIC Model Adjudication Procedure, but with amendments. Two amendments were relevant to the issue of costs. A new clause 28 had been added which stated:
“The party serving the Notice to Adjudicate shall bear all of the costs and expenses incurred by both parties in relation to the adjudication, including but not limited to all legal and expert fees.”
A new clause 29 stated:
“The party serving the Notice to Adjudicate shall be liable for the adjudicator’s fees and expenses.”
Bridgeway the subcontractors made an application to the adjudicator and the adjudicator awarded them a sum of money. Bridgeway also asked for their costs, but the Adjudicator rejected this request because of the terms of the contract.
Unfortunately, in the ensuing court case his Honour Judge Mackay had no alternative but to decide that the clauses were not void, nor voidable. In this case the alterations were to a CIC Model Procedure and not alterations to any Act of Parliament.
It is obviously a decision that the Contractors love and Specialist Sub-Contractors are stuck with until the Construction Act is amended to prevent this blatant abuse of the Act. As the law stands Contractors (bless their black hearts) can still get away with adjudication clauses that effectively take away your right to adjudication by making you responsible for all the costs!!