Rolling the Dice - Is it Worth the Risk?
Updated: Jul 23, 2020
Remember the song, "Know when to hold, know when to fold" ? It's a lesson worth remembering. (Check the bottom of this post, if you've forgotten or are too young)
Have you ever come across this clause in your subcontract?
"The Subcontractor’s entitlement to an extension to the Date for Practical Completion under the subcontract is the Subcontractor’s sole remedy for any delay and disruption in the execution of the Subcontract Work, whether caused by and act or omission of the Contractor (including any suspension of the Subcontract Work or change to working hours directed by the Contractor under the Subcontract), a breach of the Subcontract by the Contractor, negligence or other default of the Contractor, or howsoever otherwise caused.
Subject to the provisions of Schedule X [in relation to the requirement for the subcontractor to provide updated programs], the Subcontractor accepts the risk of all increased costs and other losses resulting from any delay or disruption in the execution of the Subcontract Work".
This clause ties in with strict requirements for subcontractors to prepare and update their own programme, as well as strict time bars for notifying and claiming extensions of time, and heavy liquidated damages of up to 1.5% of the subcontract value PER DAY if you fail to get extensions of time awarded. (So you can lose over 10% of you contract sum in a week).
Whilst the penalties are severe, if every subcontractor follows these extension of time procedures, it does give the Contractor the data it needs to manage the programme, although my recent experience is that major contractors’ ability to manage construction programmes is sadly very limited. This makes it all the more important to maintain your side of the contract.
Let’s break down the risk -
You are not entitled to any extra cost for delays to your tender program for delays caused by:
any act of the Contractor;
any change in working hours directed by the Contractor;
suspension of the Subcontract Work (with no limit);
a breach of contract by the Contractor;
the Contractor’s negligence;
or any other reason.
But you must:
prepare, update and maintain a subcontract program;
notify all delays and claim extensions of time immediately you are affected.
hope that the Contractor accepts your extension of time claims.
or you risk losing big money very quickly.
Good, well-managed subcontractors that I know have suffered huge (up to $0.5million) losses after their contracts with major contractors were strung out for many months, through no fault of their own;
Essentially the Contractor is passing one of its key risks to you. The difference is that managing the programme and coordinating subcontracts is one of the main reasons that an owner hires the contractor. It is, in my opinion, unconscionable to pass this risk to subcontractors who have absolutely no control over or authority to manage anything or anyone other than their own work, but they do.
What can you do?
negotiate to have this clause struck out;
build a contingency into your tender. The problem here is that you have no idea how much to add and no contractor I know would take it into account when assessing tenders);
maintain a significant cash reserve for losses;
hope for the best;
ask yourself, "Is it worth the risk?"
At the very least you absolutely must have a bulletproof system to quickly identify, notify, track and claim extensions of time.
If you want to know more about systems to efficiently manage extensions of time, please contact me by email firstname.lastname@example.org or mobile / facetime 0404 842104