The most common response I get from subcontractors when discussing complying with strict contract provisions is that they are reluctant to give notices under the contract every time they are delayed, disrupted or given an instruction that may be a variation because they will risk the business relationship with the head contractor being branded with starting the “paper warfare” and may not be invited to tender on subsequent work.
Even worse, they say their reputation for enforcing their contract will get around, and they will not be invited to bid on other contractors' projects.
These fears are not unfounded. We have direct experience of subcontractors declining to take up software to improve payment processes after being warned off by major head contractors. Some years ago there was talk that a major airconditioning subcontractor was forced to close its business after word got around that it was ‘too litigious”. Old habits die hard. Traditional site supervisors and contractors thrive on chaos and non-compliance because it plays into their hands. Threats and intimidation are much easier than taking responsibility for programme and contract management.
There are embedded reasons for these behaviours that should be exposed, some of which are:
Site Supervisors are only concerned with progress and performance on site. Their bonuses rely on meeting programme deadlines. They do not want to know that a subcontractor may not have to act on an oral instruction until it is in writing, and will not be paid if it commences work on an instruction before obtaining a written instruction to proceed. If it is a variation, the subcontractor may have to wait for a variation approval before it can proceed. These contract management procedures can take days or even weeks out of a programme, especially if the head contractor prevaricates.
Contract Administrators are only concerned with meeting or beating budgets. Their bonuses rely on meeting or beating budgets. They are only concerned with strict compliance of subcontract conditions. This attitude may not be unreasonable. With dozens of subcontracts and supply agreements to administer, they cannot afford a build-up of unknown problems and claims behind the scenes. They must be confident about the budget and be given information to pass up to their clients, in time, when required.
Many Head Contractors under-resource the management of projects and resource the management with junior, inexperienced and unsupervised staff. As a result, contract programmes are not regularly updated and site management becomes reactionary instead of pro-active. Subcontractors, in turn, are just reacting to panic management. Equally, contract administrators do not have any proactive systems and processes to manage instructions, variations or delays. They rely entirely on feedback from subcontractors.
Since the mid 1970’s there has been a long-standing move towards bespoke, risk-averse contracts that do not consider the fundamental principle of contract that “each party should bear the risks that they are best place to manage”. Selling down risk seems like a good idea at the time; however, the authors and their clients often forget that these contracts have to managed in the real world of disruptive processes that run at speed.
I have demonstrated the substantial productivity gains that can be made by changing and automating contract management processes, including extensions of time, real-time scheduling integration, and variations, some visualisations of which are on the MIAC Workflow Integration YouTube channel. These productivity gains will only be realised when contract process is unblocked by removing “risk walls” in favour of “risk management”. Where does this leave subcontractors now, and what can they do to satisfy the competing needs of their clients?
Governments are tightening up on aspects of payment that provide clear processes for claiming, paying and disputing progress claims. Soon they will protect retention moneys and amounts due for payment with project trust accounts.
BUT, they will only protect moneys DUE for payment. Whilst it may be a game-changer in managing cashflow, it is likely to lead to a demand for much stricter compliance with contracts.
Subcontractors must comply with their contract in order to protect their entitlement to payment. If you lose your ENTITLEMENT to be paid because you have missed a notice, then amounts that you think you earned may not be DUE.
How to satisfy the conflicting interests of your clients?
Carefully examine all your contractual responsibility, especially notices for delay, extension of time, disruption and variations. Separate and schedule these responsibilities and ensure that EVERYONE in your business who is working on the job understands their role and its implication for the business.
Tell your client (especially the Site Supervisor), up-front, that you must comply with the conditions of your contract in relation to directions, instructions, extensions of time and variations. If necessary, tell them that they wrote the contract and expect you to comply. Summarise these requirements on a page and give them to the site supervisor and contract superintendent. It is possible, even likely, that they do not know your responsibility or their own, because they have not read the contract in detail.
Separate your responsibility. Your site personnel should look after and develop the site relationships; your office staff (if you are a micro-business your wife, partner) should look after and develop the contract administrator relationship. Help you client achieve their objectives. Mobile technology allows us to respond to site-generated issues very quickly. There are dozens of apps that help to facilitate business communications. TIP: You need to think about this, because it involves management change. Remember, your site personnel are your eyes and ears. A tradesperson must be much more engaged in the management process. It is no longer good enough to think that your trade work is enough.
Establish a critical path programme to map and monitor your own progress, including extension of time notices, disruption, instructions and variations. This is very important, because head contractors rarely update contract programs (they are very different from amended “finishing” programs) and head-contractors can use this against you in a payment dispute. There are some excellent systems available to make this job simple and easy. Team Gantt is a good example.
Train your staff in their responsibility and the tools to make it happen.
Win-win outcomes are better for you, your client, their client, your family and the country.
"It's simple, but it's not easy. Why? Because you have to DO IT"
Please contact me, john@lowry.com.au, T: 0404 842 104 if you would like to follow up on anything in this letter.
Disclosure: Lowry Consulting is a partner of Team Gantt.
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