#WiseUpWednesday: Watch Out For Christmas Payment Holidays…

Don’t Become This Year’s Christmas News

Specialist Contractors routinely suffer from both late and reduced payment, and especially  so at Christmas, when some Main Contractors think it’s nice to treat themselves to a Christmas payment holiday.

Here’s a typical story from last year (modified accordingly) don’t let this be you;

“Stabard Contractors Ltd withheld payments to subcontractors in December to boost its end-of-year balance sheet.

It is understood the subcontractor was told that payments would be withheld until the New Year, after the close of Stabard’s financial half-year on 31 December.

The subcontractor, working directly for Stabard, is now having to use loans and overdraft facilities to pay its own supply chain.

Don’t Let This Be You…

Do not be the subject of this kind of news story.

The Construction Act, provides 3 great remedies for late or non-payment (Suspension and Adjudication and the threat of either or both).

Unfortunately these remedies are not used as widely as they should be.

 

One of the main reasons, is that there is a good deal of uncertainty about how much is due for payment and when it should be paid. So you might find our special report on payment useful; “How To Get Paid”

 

Use The Contract To Get Paid On Time

 

The Construction Act applies to the vast majority of projects (some are excluded by the Act itself), and the Scheme applies to non-compliant contracts (or to that part of a contract that does not comply), so if it is a “Construction Contract” as defined in the Act then there is no escaping the legislation for those who would seek not to pay you.

 

To conform to the legislation with regard to stage payments, construction contracts should now provide for the following main stages:

 

  • Payment Due Date – the date each month when a payment becomes due.
  • Payment Notice – a notice indicating the amount due on the due date (the ‘notified sum’) and the method of its calculation.
  • Final Date for Payment – the date on which payment should be made.
  • Payer’s ‘Pay Less’ Notice – if the payer intends to pay less than the amount due, a notice to that effect, together with explanation.

 

The new provisions require a payment notice and a pay less notice to be given even if the amount which is due is zero. They also require payment notices and pay less notices to be served separately.

 

Cutting Through The Legal Speak

Don’t assume that Main Contractors always comply with the law or that they are bound to be better at this than you.

Once you get your head around it, it all makes sense, so don’t let the way contracts are drafted put you off, and don’t let them take a payment holiday that they are not entitled to.

It might be getting Christmas but don’t give them a gift that they don’t deserve…

As always, if you need any help interpreting contracts, or help to resolve your payment problems, please don’t hesitate to pick up the phone, take action and give us a call on 01773 712116 or email info@streetwisesubbie.com.

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#WiseUpWednesday: Don’t Void Your P.I. Cover…

This week’s Wise Up Wednesday is about putting your company at risk by voiding your P.I. cover.

“Reasonable skill and care”

The law provides that in the absence of any written terms and conditions to the contrary, a professional designer will have a duty to act with reasonable skill and care. And a professional person is not negligent if he carries out his work to the same standard that another reasonably competent member of his profession would have met.

A designer’s duty does not necessarily require him to achieve a particular result as long as he has exercised the requisite level of care.

For example, surgeons cannot guarantee their patients will survive.

“Fitness for purpose”

The term “Fitness for Purpose” pretty much means what it says on the tin.

It means that, when completed, the works will be fit for their intended use. This is a high standard, because it effectively amounts to guaranteeing the outcome.

If for any reason your part of the building turns out not to be fit for its intended purpose, for whatever reason, then  on the face of it you’re liable – there’s no need to prove that you were in breach of the contractual standard of care, or even that there’s some fault in your design.

If it doesn’t do what it was supposed to do, then you are on the hook.

And it does NOT matter what you knew or what you were told about what the building user/owner wanted.

It’s a strange concept to get your head around, but as an example from an actual case; if you were designing the concrete floor in a warehouse, would you expect the fork lift trucks to have steel (rather than rubber) wheels?

No I thought not – and neither did the designer who was held liable for the floor’s failure…

Why does it matter?

The reason why the distinction between these two levels of responsibility is so contentious is because most professional indemnity (“PI”) policies will cover you only in the event of a claim arising out of your professional negligence (i.e. a failure to exercise reasonable skill and care).

This leaves you the designer uninsured against a contractual claim for breach of a fitness for purpose obligation.

Your policy is unlikely to respond to the claim and insurers may refuse to pay costs associated with the defence of the claim.

Further, not only do PI policies generally expressly exclude a fitness for purpose risk (since it is difficult to quantify this risk in respect of both probability of occurrence and magnitude of loss), some may even be completely invalidated.

Ouch…

The Silent Assassin

The very words “fitness for purpose” will understandably trigger alarm bells in the ears of many Specialist Contractors.

However, what many DO NOT KNOW is that where the contract is silent on the matter (i.e. there is no express limitation to reasonable skill and care) a fitness for purpose obligation will be implied.

Double ouch…

And it happens all the time, because Specialist Contractors often work on the basis of the flimsiest of contractual arrangements and documentation, which do not say anything about design – even though YOU ARE designing.

Don’t Rely On Your Broker

Unfortunately, in the immortal words of Sir Michael Caine (albeit he said it came from Peter Sellars), when it comes to design liability;

“Not a lot of people know that…”

And as one of my Clients recently found out, asking his insurance broker wasn’t particularly helpful, because they gave him defective information that put him at risk.

Triple ouch…

I hope you enjoyed my Wise Up Wednesday and that it gave you some food for thought.

In the meantime if you need any help with any of your business problems, including design liability, please don’t hesitate to pick up the phone and give us a call on 01773 712116.

 

#WiseUpWednesday: Dangers Of “Early” Payment Schemes

If you’re being offered an “early payment” or “draw down” scheme our advice is read and understand the small print.

There are a number of Main Contractors offering variations of what’s known as supply chain finance, and Balfour Beatty, Carillion, ISG, Kier, Mears, Wates, Willmott Dixon, and Morgan Sindall, are all understood to have tried, or are pushing such schemes.

They all go under different names. For instance, Carillion’s is known as the Early Payment Facility (EPF), which may sound benign, but is it?

As with every one of these schemes we have reviewed so far, the small print contains a number of serious pitfalls for unsuspecting subbies – largely down to the fact that while they enables subbies to get paid more quickly at no, or a small extra cost, they come laden with onerous terms including extending the baseline contractual payment terms to as much as 120 days.

Vital To Understand

As a Specialist Contractor it’s vital for you to understand what the implications are for your businesses of getting involved in these financing schemes. And it’s vital to understand whether – as the propaganda would have you believe – such systems are genuinely designed to benefit you the Subcontractor, or are they instead simply a ruse to help Main Contractors improve their cash positions.

It’s also vital to understand the small print, and the implications of trying to get paid if your account is under-valued, or you are faced with unfair set offs.

So, if you are contemplating signing up to any supply chain finance scheme please be aware of the potential pitfalls and concerns. The idea of being paid early may initially appeal – but you need to know whether the specific terms and conditions have the potential to ultimately leave you substantially worse off.

 

Take action

 

Take action to safeguard your business from the onerous terms that accompany such schemes, and the impact of reduced, late, or non-payment in 2016.

 

If you don’t then it could cost you your business…

 

Unscrupulous Contractors use every trick in the book, to reduce and delay payments. Specialist Contractor’s efforts to avoid or rectify this problem often come too late in the process.

 

Don’t be one of the casualties, take action now.

 

You can download a complimentary “How To Get Paid” report right now, and put an end to reduced, late and non-payment.

And you can call us for initial no cost advice on 01773 712116, and our Gold and Platinum Buddies can use their commercial and contractual consultancy to find an answer.

 

Whatever level your business is at, and whatever your specialisation I want to encourage you to experience and enjoy a better more profitable, less stressful way.

 

I hope you enjoyed my Wise Up Wednesday and that it gave you some food for thought, and please don’t hesitate to grab your Complimentary Report at “How To Get Paid”

And if you need any help with any of your business problems pick up the phone and give us a call on 01773 712116.

 

#WiseUpWednesday: Identifying And Valuing Variations In Construction

This week’s Wise Up Wednesday is about the all important  subject of variations.

The identification and proper valuation of variations is arguably the greatest source of problems for Specialist Sub-Contractors and it is therefore important to have a clear understanding of the contractual framework governing the instruction, execution and valuation of variations.

A common feature of most construction projects is that at some stage the person who has commissioned the work is going to change his mind about some element of it and will require changes to be implemented during the construction phase.

All the standard forms of contract for Main Contractors and Specialist Sub-Contractors recognise this fact and specifically provide for variations.

WHAT IS A VARIATION?

Standard forms of contract and sub-contract tend to define the term ‘variation’ in a similar way.  However, you need to be aware that there are a considerable number of standard forms and many different ways of dealing with variations. So, please take care to ensure that you are familiar with and understand the provisions in each particular contract.

IS IT ACTUALLY A VARIATION?

Disputes frequently occur as to whether a particular instruction amounts to a variation. Unfortunately a common misunderstanding made by many Specialist Sub-Contractors is to assume that all Architects, Engineers and Main Contractors instructions are variations.

Let’s be clear on that; not all instructions give rise to a variation.

Instructions may merely confirm or clarify that which was originally required under the contract, whilst the Contractor or Specialist Sub-Contractor may argue that it is a change which entitles him to additional monies.

Such differences of opinion can be minimised by ensuring that the description of the work in the Contract Documents is as clear as possible. This is very much a case of easier said than done. However, attention to detail at contract formation stage, will be well worth the effort when it is becomes necessary for you to demonstrate that the work you are being instructed to do constitutes a variation to that originally contracted for.

ESSENTIALS

At their most fundamental level, the are two essentials which you should observe when dealing with variation instructions.

1. Check whether or not the person purporting to have authority to issue variation instructions actually has authority to do so, and

2. Comply with the particular requirements of the contract in respect to instructions.

It is not uncommon for various parties to assume that they have authority to issue instructions when in fact they have no such authority. Check the terms of the contract and if it is not clear clarify the matter from the outset.

MAXIMISING RECOVERY FROM VARIATIONS

Variations are an opportunity for the Specialist Sub-Contractor to maximise his financial return from the project.

Please remember the old adage “if you don’t ask you don’t get” and in practice variations should be valued by the Specialist Sub-Contractor.

You need to submit details as soon as possible after the variation arises. This will avoid situations where the person commissioning the work has not been properly advised as to the increased value that has arisen because of the changes he has instigated and may have insufficient funds to pay for them.

I hope you enjoyed my Wise Up Wednesday blo and that it gave you some food for thought, and I sincerely hope to speak with you soon.

In the meantime if you need any help with any of your business problems, including getting paid for variations, please don’t hesitate to pick up the phone and give us a call on 01773 712116.