Hard Lesson - Entitlement is Everything
Updated: Sep 17, 2020
A good subcontractor lost a recent adjudication to a large local builder. The result is damaging to the business. The argument was substantially about delays and subsequent liquidated damages. The Main Contractor issued a Payment Schedule, claiming substantial liquidated damages. The subcontractor did not have the time or the resources to respond to the payment schedule with a full-blown legal response including a reconstructed “as-built” program to chart and prove delays to practical completion. The adjudicator, a barrister, understandably did not understand the nuances of construction programming and so relied entirely on the face of the submissions and the contract.
The contract tied practical completion to the target or master construction program for the main contract. The program was not updated for progress during the course of the work and the main contractor subsequently issued an unrelated “completion program” for the work.
Even though the subcontract delays could be easily demonstrated by reference to email and other correspondence, they had not been claimed along the way. The effect of variations was also not claimed in accordance with the contract.
Entitlement is your right to payment - without it, your risk escalates faster than COVID-19
Governments continue to tighten Security of Payment legislation and subcontractor lobby groups continue to ask for more protection. This is a double-edged sword. Head contractors will continue to use tighter and more risk-averse contracts and they will manage them ruthlessly. Subcontractors must keep up the pace.
One of the major concerns always expressed by subcontractors is the desire to maintain business relationships by avoiding the “paper war”. This is driven by the conflicting interests of the main contractors' site supervisors and contract administrators. The site supervisors' objective is always "progress at any cost" ; contract administrators are driven by maintaining or beating budgets.
Subcontractors have to balance these competing objectives. How does a subcontractor satisfy both and protect itself at the same time?
Change is inherent in construction. It will not go away, but you must learn to manage it.
Subcontractors must become more sophisticated with their contract management policies, processes and procedures if they are to consistently succeed. You can serve both the site and the contract if you are firm and know how to respond quickly to changes.
This will include:
A clear policy on payment and contract administration. It includes every person on the job understanding their role in payment.
A tradesperson is not just a tradesperson - he is the eyes and ears of the business at site.
Every contract must be carefully reviewed for time bars and notice requirements for site instructions (oral and written), extensions of time, delay and disruption, and variations.
Site staff must be briefed on when they need to notify contract administration and when they can begin work on any changed programme, and should be provided with suitable mobile apps to facilitate this process;
Developing a sub-programme for your own subcontract, taken from the agreed dates and times on the contract master or target programme, with the addition of any off-site design, procurement or manufacturing. There are excellent systems on the market to allow you to do this at a minimal cost and with minimal training.
Contract admin staff must react to notices from the site within the contract time constraints. This includes claims for variations and extensions of time from site/superintendent’s instructions, delays, and changes to progress and pricing variations including time effects.
This can only be achieved in time and accurately if you update your own program, every time, with reported delays, extensions of time and the effect of variations on the program. This is the only way that you can respond in time to protect your right to payment.
Do not rely on the main contractor’s Master Program. They are rarely updated for delays and extensions of time. Completion programs and “look-ahead” programs may be useful for day-to-day management, but they have nothing to do with your contract entitlement under the contract. Your tender was based on the baseline target or contract program. All subsequent contractual programs must be tied to the baseline program.
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