Getting Paid For Variations

This week’s ‘Wise Up Wednesday’ is about getting paid for variations.

The lack of proper valuation and non-payment of variations is one of the greatest challenges 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.

At some stage the work is going to change, and these changes will need to be instructed, implemented, measured, valued and paid for.

And although it’s usually the last bit that causes us to get stressed, you can smooth the path to payment by getting all the other elements right.

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.

And most importantly Main Contractors own terms, and amendments to standard Forms, will almost always be onerous. So, please take care to ensure that you are familiar with and understand the provisions in each particular contract.

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.

PUTTING IT ALL TOGETHER – WANT TO KNOW MORE?

You need to know how to put all this together to make sure you get paid, and protect your company’s financial well being.

So, please come  and discover the Secret Keys To Minimise Risk and Maximise Profit (including those from variations), that we have been putting into practice on behalf of Specialist Subcontractors for the last 27 years.

And they’re are being revealed at our March events;

“Understand Your Contract to Minimise Risk and Maximise Profit”

“Introduction To Contractual Awareness and Using JCT Subcontracts”

WHEN/WHERE IS IT? The dates and fast access venues are as follows;

15 March – Oulton HallLeeds close to M1 and M62

22 March – The Nottingham BelfryNottingham close to M1 J26

29 March – The Village HotelCoventry close to M6 and M40

WHAT DOES IT COVER?

We will be unlocking the Secrets To Getting Paid on time every time in a straightforward down to earth easy to follow style using real life examples.

Here’s what your fellow Subcontractors said about our last event;

“Easily digestible information delivered in an interesting and easy to understand format”

“Very detailed and informative”

“Very informative and well delivered”

“We were struggling to get paid; not any longer!”

THE HEADLINES

  • Session 1 – Contract Formation
  • Session 2 – Introduction to JCT Contracts and Construction Act
  • Session 3 – Time, Notices and Delay and Disruption
  • Session 4 – Instructions, Variations and Maximising Return
  • Session 5 – Getting Paid On Time and the Right Amount
  • Session 6 – Resolving Conflicts and Disputes
  • Session 7 – Putting It All Together

WHO SHOULD ATTEND? This is exclusively for Specialist Contractors and is designed specifically to provide a broad appeal for Specialist Contractors staff who work with contracts which includes;

  • Estimators,
  • Contracts Managers;
  • Project Managers;
  • Commercial Managers,
  • Quantity Surveyors,
  • Credit Controllers and
  • Directors

WHAT WILL WE GET OUT OF IT? The Secrets To Getting Paid! Specialist Contractors don’t get paid because they don’t understand the contract or don’t apply it when they should. We will reveal all you need to know to enable you to understand the fundamentals of those subcontracts, and how to get paid.

WHAT DOES IT COST? You can book now for preferential discounts and rates – but be quick to ensure you receive your Early Booking Discount!

Book within the next few days and instead of paying £350, you can pay just £315.00 saving you 10% off the standard price.

Book two or more places and you can pay just £280 each saving you 20% off the standard price.

Special rates apply for our Buddies (members) – please ask Tanya for details.

All rates are subject to VAT 

Booking couldn’t be simpler, just contact Tanya directly on 01773 712116 or tanya@streetwisesubbie.com to confirm your places and she will take care of the rest. She is brilliant!

But hurry our last round of seminars sold out very quickly. We look forward to seeing you there.

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Why Specialist Contractors Aren’t Getting Paid…

Sadly yet another Specialist Contractor went to the wall  this week as Wrexham-based specialist steelwork contractor L M Engineering Services went into administration.

No doubt that when the details come out they will show that the firm, which specialised in stainless steel structures for the nuclear and process industries, didn’t get paid on time!

It’s that simple!

Businesses fail because they don’t get paid when they should!

Businesses fail if they don’t get paid, even when they are profitable!

Scarily businesses fail faster when they are growing!

We see a lot of discussions about payment, in our free  LinkedIn group (see below) the complexities of the payment process, the penalties that late payment should attract and the difficulties of using existing dispute resolution processes.

As one of our contributors rightly said;

“You can make the punishments as tough as you like but if you can’t establish your basic entitlement to payment quickly and cheaply, the penalties just won’t be pursued.

When the amount “Due” and the “Final Date for Payment” are clear, existing remedies such as Adjudication, Late Payment of Commercial Debts and Small Claims are quick and easy to use and effective.”

Justin went on to suggest that to make effective use of these tools you need to know only 2 things

HOW MUCH? (am I due to be paid)

and

WHEN? (am I entitled to receive it).

And I absolutely agree with him. If you know these two things with certainty then the process of ensuring you get paid what you are entitled to, and on time, gets a lot easier.

Notice that I said “the process of ensuring you get paid” and “gets a lot easier”.

That’s because getting paid has to be treated as a process and it’s a process that’s never entirely easy!

One of the biggest obstacles to overcome is the determination and ingenuity of certain unscrupulous Contractors when it comes to finding ways not to pay. As a result, many contractors have drafted payment regimes that comply with the letter of the Construction Act but completely avoid its intent.

So, the first part of the “process” is ensuring that you DO NOT sign up to contracts that you do not understand.

If You Don’t Understand It – Don’t Agree To It!

Very often that’s easier said than done!

Contractors know this and have put such convoluted payment terms in their “standard” contracts that it is very difficult to show that a payment actually became due at all.

Watch out for their ridiculous requirements for a “valid application” which is a precursor to a payment becoming “due.” These include full substantiation of all amounts applied for, copies of invoices, forecast final accounts with every interim application, etc.

That way they can say that your application doesn’t comply with the contractual requirements and no payment becomes “due”!

Don’t agree to these clauses unless you fully appreciate their impact. And don’t allow yourself to be pressured into doing so because you think you have no option because you want the work.

Do you want the work so much that you are prepared to do it for nothing?

Because that might very well be how it turns out!

Onerous Terms That Still Meet the Act!

If the contract complies with the Act then it is the contract which applies.

But remember, and beware, because the Act does not preclude the onerous requirements for substantiation and the like that certain Contractors may have put there!

If you are in any doubt about what the payment terms mean, or 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.

Its Wise Up Wednesday! – Some Thoughts About Getting Paid

 

It’s 2014 and whilst things might be looking up, we need to stay  focused on doing the right things in our business, because the future isn’t certain, with no-one truly knowing what is round the corner.

These past few years have been anything but plain sailing for Specialist Contractors in the construction industry, and that’s why we have put together our Streetwise Wise Up Wednesday Guides to give you a quick burst of stuff that will help you in your business life.

Sometimes quirky, sometimes hard hitting, but always guaranteed to make you think and take no more than 2 minutes to read.

Some Thoughts About Getting Paid

After safety, payment is obviously one of the most important issues for any business and it may sound obvious, but it is essential that you understand the terms of the contract as regards payment, and what you can do if you are not getting paid.

Many contracts refer to the “due date” and “final date” and the origins of these terms are to be found in the old DOM/1 form of Sub-Contract which was first published around 1980 and in widespread use in the 80’s and 90’s. The payment provisions of that contract said;

“21.2.1 The first payment shall be “due” no later than one month after the date of commencement”

“21.2.3 The first and interim payments shall be be “made” not later than 17 days after the date when they become “due”

So, if the parties didn’t or couldn’t agree anything else, there should be no dispute as to the date that the Sub-Contractor started work, and the date by which the payment had to be “made” was readily determined from that indisputable date.

When Part II of the Housing Grants Construction and Regeneration Act 1996 (the Construction Act) was drafted they used DOM/1 as a starting point and kept the idea of a “due date” and simply converted the date by which payment should be “made” into the “final date” for payment.

And contracts have been written to comply with (or try and get round) the Act ever since.

So How Come Payment Times Been Extended?

Unfortunately in accordance with the Act, the Parties are “free to agree” the relevant time periods between “due date” and “final date”.

So guess what? The Contractors have extended and extended them ever since!

“Free to agree” means free to get screwed, if you don’t have your wits about you!

What Can I Do If I Am Not Getting Paid?

It is extremely important to understand the distinction between the various payment problems that that might otherwise get rolled up and referred to as “non-payment”.

For example non payment could be due to;

  • under valuation of works or variations
  • set off from monies otherwise due
  • failure to comply with the contractual mechanism that trigger payment

Because understanding exactly why you are not getting paid, is key to unlocking payment.

And unfortunately walking off site is not a simple option!

Suspending work is NEVER something to be done lightly or casually, or without taking proper advice!

One of my Clients did just that, and suspended without taking my advice.

Not only did the Contractor determine his contract on the grounds of my Client’s repudiatory breach, which meant no further payment, they also hit him for £80,000 for finishing £20,000’s worth of work!

But don’t misunderstand me here.

Suspending performance of your obligations (which is much wider than just “works”), is the most powerful remedy available to you. But you need to ensure you are entitled to do so.

So, if you have a payment problem pick up the phone and give me a call.

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