Imagine you are in the supermarket and your favourite wine is advertised at 50% off, you put a half a dozen bottles into your trolley (whilst your partner isn’t looking), but when you get to the checkout the price you are charged shows that you only got the 50% discount on one bottle.
You query it with the cashier, only to be told that “you need to read the small-print on the advertisement”. Would you just accept it and pay up regardless?
No. I didn’t think so!
If you are like most of us you would be checking that ad and asking to see the manager and having a right go about it.
So why don’t Specialist Contractors adopt the same mentality when their business is being ripped off by onerous terms?
Not all contracts are the same, and onerous terms are there waiting to rip off the unwary. You will usually find them lurking in the depths of Contractor’s own “non-standard” documents, but they can also arise as amendments to Standard Form contracts.
These terms are deliberately designed to reduce your entitlements and increase your obligations. They will certainly make your life more difficult, they could end up costing you a substantial amount of money, and in the worst case scenario they may even cost you your business!
The simplest way to put onerous terms into context is to ask yourself this question; “Why, when there are all manner of Standard Form contracts around such as JCT, NEC and MF/1, does anyone need to produce their own terms?”.
The simple answer is that it isn’t for your benefit!
So, what are the things you need to look out for? Here are some examples;
(a) Extended payment periods
(b) Long notice period before you are allowed to suspend performance
(c) Pay when certified (unlawful in contracts to which the Construction Act applies)
(d) Extended fixed price periods
(e) Non-payment for unfixed materials
(f) Excessive discount
(g) Discount not linked to prompt payment
(h) Excessive retentions and/or prolonged repayment periods.
(i) Onerous set-off and cross contract set-off clauses
(j) Acceleration without payment
(k) Vague programme information.
(l) Design fitness for purpose obligations
(m) Open ended co-ordination obligations
(n) Restricted rights of recovery on variations
(p) Protection of your works
(q) Client’s milestone dates for access
(r) Excessive liquidated damages
(s) Restricted extension of time entitlements
(t) Restricted loss and expense entitlements
(u) Delay notice periods made a condition precedent
(v) Adjudication entitlements restricted or delayed
Costs of adjudication to be paid by the Sub-Contractor
(x) Other Construction Act abuses
Don’t Allow Onerous Conditions Into The Contract!
Obviously the best time to find out about onerous provisions is at the enquiry stage before you have even submitted your price. You should always be clear about the terms and conditions you will be working under if your tender is successful.
If you don’t know or don’t have time to find out about terms and conditions you should always qualify your tender. For example you could qualify it by saying something to the effect of
“Our price is based on the assumption that an appropriate JCT Standard Form of Sub-Contract will be used and subject to agreement of all necessary details to enable Articles of Agreement to be completed”
“Our offer is subject to the agreement of appropriate terms and conditions and we have not priced the risk of entering into any onerous or non-standard form of agreement”
If your tender is successful then you will be invited to enter into a contract or possibly sent an Order or Contract to sign. This is a very dangerous time because a contract, including the onerous provisions could easily come into being!
The first line of defense lies is recognising onerous terms and conditions in the first place. Whilst you may be tempted to ignore the small print, you may subsequently find that a contract has come into force incorporating onerous terms which have fatal consequences for your business.
You need to act quickly and carefully. Don’t think that you can start work, even design work or ordering materials, and just because you haven’t signed the contract everything will be all right. It won’t!
The contract conditions should be carefully checked, particularly if they are contained in a completely non-standard form. Beware too of contracts that purport to be Standard Forms but then have pages and pages of amendments.
Unfortunately, you also have to be wary of clauses that are not there, as well as checking the ones that are!
For instance, if you are designing the works and the contract is silent about design liability, then you will have a very onerous “fitness for purpose” obligation. This is much worse than it sounds because you are literally guaranteeing your design will satisfy the Employer’s needs irrespective of what you knew or didn’t know about his business or industry.
In order not to be caught by onerous provision you must make it perfectly clear that you are rejecting their onerous terms. Notice I said rejecting their terms, not rejecting their order.
There may be times when you have to take a commercial decision to accept onerous terms and conditions of contract. In this situation you need to be very clear about the risks you are running and manage them accordingly.
I hope you enjoyed this week’s Wise Up Wednesday.
If you are in any doubt about whether or not the terms and conditions are onerous you need to take professional advice and StreetwiseSubbie’s Nationwide Network of Consultants are experts in helping you to deal with such matters. If you need help, you can call us for initial free advice on 01773 712116.