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A Practical Gude to Sub Contracting

Mike Testro

Expert Delay Analyst Ltd

23 Trinity Street

Bungay

Suffolk – NR35 1EH

01986892345 07798765800

miketestro@outlook.com www.expertdelayanalyst.com

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0 Introduction

0.1 Why write this paper.

0.1.1 Sub contractors have to be contract aware to survive in this harsh contracting world.

0.1.2 Some are better at it than others and some do not survive the legalised theft of Main Contractors.

0.1.3 This paper therefore is intended to provide a check list of things to do and / or be aware of to avoid being ripped off by others.

0.2 Sections

0.2.1 I have split this up into the following sections:

0.2.1.1 Before you sign.

0.2.1.2 Before you start.

0.2.1.3 During the work in progress.

0.2.1.4 After finishing the work

0.2.1.5 Wrap Up

0.2.2 There are sub headings to each section.

0.3 Exclusions

0.3.1 I am not qualified to advise you on such matters as:

0.3.1.1 Insurance

0.3.1.2 Warranties

0.3.1.3 Head office Warranties

0.3.1.4 Bonds

1 Before You Sign

1.1 Understanding What Is Written

1.1.1 Legal documents are set down in a different language to that which we use in everyday life but it is not difficult to interpret.

1.1.2 For instance there is a fundamental difference between the words “shall” and “may”.

1.1.3 Precise definitions can be obtained by Google and sometimes it helps if the translation can be inserted into the legal text.

1.1.4 If you do not fully understand the document then get advice before you sign it.

1.2 Significance of the Signature

1.2.1 How many times do I hear the phrase “But I never signed anything”.

1.2.2 It doesn’t matter – if you started work then the last document on the table has been accepted and is binding by your conduct of starting the work.

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1.2.3 Never ever sign a contract after you have started work without checking what has changed since you started because potential claims will have been “waived” because you agreed to do it anyway.

1.3 The Complete Document

1.3.1 It is not just the form of sub contract that you are signing there are also many attachments that will be legally binding which often include:

1.3.1.1 Sub Contract Order

1.3.1.2 Drawings

1.3.1.3 Specification

1.3.1.4 BOQ

1.3.1.5 Amendments to the Standard Form

1.3.1.6 H&S rules

1.3.1.7 Pre start minutes

1.3.1.8 Programme – although if the programme is listed as a contract document it could prove beneficial.

1.4 Unenforceable Clauses

1.4.1 Generally some clauses can be unenforceable because:

1.4.1.1 The draftsman is not aware of changes to acts of Parliament that have not been updated in their standard terms.

1.4.1.2 Sloppy drafting and conflicting terms.

1.4.1.3 Harsh and impossible requirements.

1.5 Money Terms

1.5.1 There may be some sections of the contract that are legally unenforceable.

1.5.2 These generally concern money items such as repayment of retention that depends on the contractor getting his release of retention on the main contract.

1.5.3 This falls foul of the “security of payment” act which can be found in the Housing Grants, Construction and Regeneration Act 1996. This Act was amended in 2009 by the passage of the Local Democracy, Economic Development and Construction Act 2009.

1.5.4 In essence it says that payment terms in one contract cannot be linked to payment under another different contract.

1.5.5 Thus Pay when Paid clauses are no longer allowed.

1.6 Time Terms

1.6.1 These usually turn on events that enable the Main Contractor to extend the completion date of the Sub Contract works.

1.6.2 Remember that the sole purpose of the extension of time clauses are to protect the Main Contractor’s right to deduct LAD’s.

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1.6.3 If the Main Contractor or any other Sub Contractor on the job causes a delay to your work you are entitled to an extension of time.

1.6.4 If there are no grounds for an EoT award then time will be At Large.

1.6.5 Time At Large means that you have a reasonable time to complete the work and no LAD’s can be applied.

1.6.6 But beware – If you don’t finish in a reasonable time then the Contrcator’s damages are general.

1.6.7 If you want to know what is a reasonable time then ask a Delay Analyst.

1.6.8 So if the relevant events are limited or not even stated then that will benefit you immensely.

1.6.9 Look out for phrases such as “No EoT awarded under this Sub Contract will exceed an EoT awarded to the Main Contractor under the Head Contract”.

1.6.10 If you see that then don’t change it because when the Contractor or any other of his Sub Contractors cause you a delay that cannot be passed on to the Employer then time under your Sub Contract will be set at large.

1.7 Liquidated and Ascertained Damages

1.7.1 For these to be applied there has to be a clear aiming point that when missed will enable collection of LAD’s.

Note: I use the word point because it may be that no actual date is stated – it could be a number of weeks from a start date yet to be established.

1.7.2 This is usually established by giving a clear completion point and a single rate of LAD’s

1.7.3 If there are multiple sectional completions and no allocated LAD’s for each section then the individual sections can be as late as the final end point and no LAD’s can be deducted.

1.7.4 If there are different rates of LAD’s and no clear corresponding trigger point then LAD’s may be unenforceable.

1.7.5 If there is no LAD clause at all then the Contractor will be able to collect general damages that represent his entire loss and expense.

1.7.6 In this case it is wise to negotiate a cap on the total collectable otherwise the risk is too great and you should walk away.

1.8 Multiple Contracts.

1.8.1 Say you are working on a project where there are a number of sections on the same site and you have been given different orders for each section – then that is multiple Sub Contracts for the same project.

1.8.2 Then if delays on one section cause delays on another then you will be entitled to an EoT on the other section.

1.8.3 This applies even if you caused the delay and in some circumstances such as in JCT forms may even set time at large.

1.8.4 But look out for any “cross liability” clauses which will nullify any such benefit.

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1.9 The Three Main Promises

1.9.1 Scope

1.9.2 Time

1.9.3 Money

1.10 Triangle Balance

1.10.1 You have probably seen this triangle before:

1.10.2 This is the layout at the time you signed the contract when everything is in balance.

1.10.3 If the time increases then the money will increase commensurately.

1.10.4 If the scope increases then the other two shift as well:

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1.11 “But If”

1.11.1 The rest of the Sub Contract is all about risk allocation in the form of “But If” clauses such as:

1.11.1.1 You promise to carry out an agreed scope of work but if the Employer wants something different you will follow his instructions.

1.11.1.2 You promise to finish on a certain date but if particular events delay you then the Employer will change the completion date.

1.11.1.3 The Employer promises to pay you an agreed sum of money but if you do a different set of work the money paid will change accordingly.

1.11.2 Understanding how these “But If” clauses work is the key to the successful out come of the project.

1.11.3 The But If clauses will come about during the progress of the work so they will be dealt with in that section.

1.12 Scope

1.12.1 This is usually set down in a set of documents including:

1.12.1.1 Drawings

1.12.1.2 Specification

1.12.1.3 BOQ

1.12.2 The full scope will be determined by a combination of these documents and they must all be read and integrated.

1.13 Time

1.13.1 This will be the largest risk element of the project and the potential for the largest cost implications – it is essential therefore that you understand the full implications of what you are signing up for.

1.13.2 The time element usually comprises one of the following:

1.13.2.1 A Start Date and a Completion Date.

1.13.2.2 A stated duration in a number of weeks.

1.13.2.3 An indicative programme of work.

1.13.3 Sometimes there may be a combination of any of the three.

1.13.4 It often happens that a combination of a stated date and number of weeks is different to that shown on the indicative programme.

1.13.5 If this sort of confusion arises then let it ride because it will assist if you have to argue about the trigger point for LAD’s later on.

1.13.6 In general any sort of ambiguity regarding start or end dates or sub contract durations will assist when the arguments start.

1.14 Money

1.14.1 This will mostly be expressed as a fixed price based on some form of BoQ or schedule of rates.

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1.14.2 The risk of accurate quantities is usually placed with the Sub Contractor.

1.14.3 This will be taken off from the drawings issued with the invitation to tender.

1.14.4 The drawings issued for construction will be different and invariably change on the large size – this will be dealt with in section 3 – During the Work in Progress.

1.15 Provisional Sums

1.15.1 If these are included for items of work then they will almost certainly be classified as Undefined.

1.15.2 The general convention is that work under an undefined provisional sum is not included in the construction programme or the stated work duration.

1.16 Design Responsibility

1.16.1 Check and thoroughly understand what – if any – are your responsibility for design of any part of the temporary or permanent works.

1.16.2 A “fit for purpose” responsibility is more onerous than “reasonable skill and care”.

1.16.3 This includes workshop drawings.

1.16.4 Remember that your obligation to provide designs also gives you the right to design a suitable scheme.

1.16.5 Your design cannot be rejected just because the end user wants it done differently or more costly – if it is fit for purpose then anything else is an extra.

2 Before You Start

2.1 The Prestart Meeting

2.1.1 This is when the Contractor introduces his pro forma check list with yes or no tick boxes.

2.1.2 Be careful that this document is not listed as a contract document that you have signed previously.

2.1.3 It is at this time when you will become aware of the sub contract start date so you can calculate the agreed completion date.

2.1.4 It is a good idea to send your calculation to the Contractor if it is not set down in the pre start agreement.

2.2 Workshop Drawings

2.2.1 There should be a reasonable time allowance for you to prepare any workshop drawings prior to manufacture.

2.2.2 If the construction drawings are not up to level E or F then send a notice that your design work is being delayed.

Note. Notices are covered in section 3.

2.2.3 There will be a period of time for the Contractor to either approve the workshop drawings or seek such approval.

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2.2.4 It is a good idea to write down the expected approval date when you submit the workshop drawings and if it is not returned by then issue an immediate notice.

2.2.5 If your workshop drawings are rejected it must be because your design is proven to be not fit for purpose.

2.2.6 Any other reason is not valid and should be challenged.

2.3 Mobilisation

2.3.1 Always turn up on site on the agreed date.

2.3.2 Otherwise you have given the Contractor an open goal to refute any future EoT claims.

2.3.3 If the site isn’t ready for you then send a notice and go away or hang around until you can start – whichever is most economical for the Contractor.

2.3.4 Check that all the site facilities that are being provided for you are in place and accessible.

3 During the Work in Progress

3.1 Records

3.1.1 If you have no records then you have no chance of a successful claim.

3.1.2 Do not think of the minimal cost involved – it is your insurance for when things go wrong.

3.1.3 It does not take a lot of effort to write down “who did what when and where” and it can be done on a simple spreadsheet:

3.1.4 You have to keep this sort of record for your H&S log anyway so just a few more details and you have the complete picture.

Date Name Location Work Hours O/T

01-Jun-18 Matt Davies L4 - Room 18 Taping up for skim 8

01-Jun-18 John Spinks L4 - Room 10 Skim Walls 8 1

01-Jun-18 Bill Mathews L4 - General Loading out 8

01-Jun-18 Oscar Pettigrew Yard Stores 8

01-Jun-18 Peter Smith L4 - Room 9 Coving 8 2

02-Jun-18 Matt Davies L4 - Room 17 Skim Ceilings 8

02-Jun-18 John Spinks L4 - Room 10 Skim Walls 8

02-Jun-18 Bill Mathews L4 - General Loading out 8

02-Jun-18 Oscar Pettigrew Yard Stores 6

02-Jun-18 Peter Smith L4 - Room 10 Coving 8

3.1.5 Keep it simple on the spreadsheet and it will act as a usable database.

3.1.6 Make sure that it is backed up daily.

3.1.7 Submit the file to the Contractor every week.

3.2 Photographs

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3.2.1 These can be useful provided:

3.2.1.1 The same shot is repeated from the same location.

3.2.1.2 The picture is clearly labelled and dated.

3.2.2 They are usable for adjudications but arbitrators and judges treat them with caution because the date and time settings can be tampered with.

3.3 Site Diaries

3.3.1 These must be strictly controlled as sometimes an entry can damage your case.

3.3.2 For instance I often see diary entries such as “Sparks men not on site again today – job is slowing down”.

3.4 Weather

3.4.1 If weather is a factor then it should be recorded when it affects your work progress but only use when time is critical because it will not get you any money.

3.5 Weekly Reports

3.5.1 The entire weekly record can be bundled up and tabled at the regular site meetings.

3.5.2 These should include records of delay issues with reference to the notices sent.

Note: An item in the site minutes may not constitute a contractually valid form of notice.

3.6 Notices

3.6.1 Requirement

3.6.1.1 Most Sub Contracts will require you send an official contractual notice if you intend to claim time and / or money.

3.6.1.2 There are two legal types:

3.6.1.2.1 A condition precedent – which means your claim is likely to fail if it is not submitted in time.

3.6.1.2.2 It is not a condition precedent – in which case you should submit a notice but it would not be fatal if you forget.

3.6.1.3 Typically any JCT form of contract is not a condition precedent but the Contractor will almost certainly have amended it.

3.6.1.4 The purpose of the notice is so that the receiver has been made aware that an event is likely to cause delays and / or money and he can make arrangements or change his mind.

3.6.1.5 However if the Contractor or one of the other Sub Contractors has caused the delay by his own default then such “Acts of Prevention” may bypass the need for a timely notice by way of the rule of “Unjust Enrichment”.

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3.6.1.6 In any case it is best not to risk it and always send the notice.

3.6.2 Notice Format.

3.6.2.1 Make sure that it is sent to the right address and in the correct format – emails are not always acceptable.

Note: A fax is acceptable but the law has not yet caught up with the internet.

3.6.2.2 Check the contract to get the correct address and format and stick to it.

3.6.2.3 The notice will usually be in two stages:

3.6.2.4 The Initial Stage will include:

3.6.2.4.1 A clear description of the circumstances.

3.6.2.4.2 The Sub Contract clause(s) that give you the entitlement to claim.

3.6.2.4.3 A rough estimate of the effect on time and / or money.

3.6.2.5 The Detailed Stage will include:

3.6.2.5.1 A detailed record of all the circumstances as and when they occurred.

3.6.2.6 A detailed calculation of:

3.6.2.6.1 The likely effect on the Sub Contract completion date.

3.6.2.6.2 The extra cost that will be incurred.

3.6.3 Notice Timing

3.6.3.1 It is essential that the notices are issued within the time required by the Sub Contract.

3.6.3.2 A late notice is the same as no notice.

3.6.3.3 However the trigger date for the notice may be an issue.

3.6.3.4 Most standard contracts state that the notice must be issued within 14 days of when the Sub Contractor is “aware or should have been aware” that an EoT is required.

3.6.3.5 I have seen amended Sub Contracts that state the notice must be issued within 14 days of the “occurrence of the event”.

3.6.3.6 It is highly possible that you will not be aware of the delay potential until some time after the 14 day period.

3.6.3.7 This is particularly true if the initial delay just uses up float but is then turned critical by another event later on – such as moving into bad weather.

3.6.3.8 In such circumstances the Contractor cannot rely on the lack of notice to refute the first claim.

3.6.4 Acts Of Prevention

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3.6.4.1 When a Contractor or another Sub Contractor by his own default prevents you from progressing with the work then it is an Act of Prevention.

3.6.4.2 This circumstance will usually trump a lack of contractual notice on the grounds of “Unjust Enrichment” but always send one anyway.

3.7 Programmes – Status

3.7.1 Is it a Sub Contract Document?

3.7.1.1 If the Sub Contract programme has been bound into the document then it has a different status to one which has been agreed later and is a spate document.

3.7.1.2 The simple reason is that a contract document can only be changed by:

3.7.1.2.1 Mutual Agreement

3.7.1.2.2 Contractor’s Instruction

3.7.1.3 When a Contractor issues a different programme to that bound into the Sub Contract he has automatically awarded an EoT if the completion date (or any section thereof) is later.

3.7.1.4 This is because he has instructed you in writing to do something different.

3.7.1.5 You must issue the correct notice to secure the EoT but if he refuses to grant it then time will be set at large..

3.8 Programmes - Two Categories:

3.8.1 Sole Occupancy.

3.8.1.1 If you are the only Sub Contractor on site then it is most likely that you will have agreed a programme against which progress is monitored.

3.8.1.2 This will probably have a clear critical path.

3.8.1.3 It has long been held that you can only ascertain an EoT by impacting an event on a critical path.

3.8.1.4 Experienced Delay Analysts are now coming round to question this established wisdom because it will always produce a theoretical result which is easily contradicted by facts.

3.8.1.5 Alternative simpler delay analysis methods are developed including Projected as Built.

3.8.2 Multiple Occupancy

3.8.2.1 If you are sharing the site with other work packages then your work will be affected by the other trades as will your work affect others.

3.8.2.2 In this sequence your tasks on the programme will not have a critical path for your sub contract work but may form part of a critical path to the whole job.

3.8.2.3 The most effective method to demonstrate an entitlement to an EoT is to compare the As Planned tasks to the As Built.

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3.8.2.4 This only works if:

3.8.2.4.1 Your records are sufficiently detailed.

3.8.2.4.2 You did not cause any delay.

3.8.2.5 You only have to demonstrate that you were denied access to the work front – the reason is irrelevant.

3.8.3 No Programme

3.8.3.1 The Contractor may not issue a construction programme but simply instruct you to work here and there as required.

3.8.3.2 In this case you can calculate where you are in your Sub Contract duration by comparing the time percentage with the labour resource percentage.

3.8.3.3 If you have used up 50% of your Sub Contract period and 35% of your estimated labour deployment you are behind time and it is relatively simple to project the likely completion date if the rate of progress continues.

3.8.3.4 Make sure you send in a notice.

3.8.3.5 Do not use the whole cost value because use of materials is not an indication of time expended.

3.9 Interim Valuations

3.9.1 Basic Rules:

3.9.1.1 Make sure they are:

3.9.1.1.1 Issued on time.

3.9.1.1.2 Accurate.

3.9.2 Smash and Grab

3.9.2.1 Recent legislation has put an end to smash and grab adjudications where you could take advantage of a late or wrong pay less notice where you have inflated the interim valuation.

3.9.2.2 From now on you should ensure that each interim valuation is a record of the “True Value” which means that the Contractor has a short time to respond with a “True Value” of any deductions he wants to use in a pay less notice.

3.9.3 Contra Charges - General

3.9.3.1 The main Contractor will often try to apply contra charges to every Sub Contractor on the site.

3.9.3.2 These may include:

3.9.3.2.1 Site cleaning.

3.9.3.2.2 Wear and tear on the site office and welfare facilities.

3.9.3.2.3 Anything else that an imaginative site QS can dream up.

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3.9.3.3 Usually the sums demanded are relatively small and not worth challenging but they are not legal on the principle that “he who alleges must prove”.

3.9.3.4 You can roll them up and include them in a larger dispute.

3.9.4 Contra Charges – Specific

3.9.4.1 These are deductions that are taken from you alone and should arise from some specific thing that you have done wrong.

3.9.4.2 These can only be deducted if you have been given the opportunity to put things right and either refused or failed to do it correctly.

3.9.5 Long Payment Terms

3.9.5.1 These will be set into the Sub Contract and you have to judge whether your business can stand the extended credit.

3.9.5.2 If in doubt then walk away – remember Carrillion.

3.9.5.3 Some contractors will try to extend the term midstream but such attempts must be challenged and a late payment notice can be used if he does it unilaterally.

3.9.6 Dayworks

3.9.6.1 You all know the “daywork” routine but it is worth repeating,

3.9.6.1.1 Do nothing until you get an instruction to do specific tasks on daywork.

3.9.6.1.2 Know who is authorised to sign the sheets and get them signed.

3.9.6.1.3 Send them in when required and certainly no later than weekly.

3.9.7 Provisional Sums

3.9.7.1 You must have a formal instruction before you do any work on a provisional sum – follow the Chinese laundry rule “No Ticky no Shirty”.

3.9.7.2 The date of instruction is essential for you to establish any delay impact that following the instruction may have caused.

3.9.7.3 If there is any indication of changes to time and / or money then send in a notice.

3.9.8 Variations

3.9.8.1 These must follow an instruction to do something different than what you included in your tender.

3.9.8.2 This includes changes to the drawings.

3.9.8.3 If you have a compatible CAD system you can overlay the different drawings electronically and the differences will be revealed.

3.9.8.4 If not then hold the two drawings against the window and cloud the different sections.

3.9.8.5 Don’t rely on the Contractor listing the drawing changes for you.

3.9.8.6 Always give a notice if you are claiming time and / or money.

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3.10 Claims

3.10.1 No detailed discussion is given in this document

3.10.1.1 Because:

3.10.1.1.1 It is a vast subject.

3.10.1.1.2 Every case is unique

3.10.1.1.3 It is bad for business.

3.10.1.2 Whatever happens don’t leave it all to the end when you have no leverage or bargaining power.

3.10.1.3 The biggest lie you ever hear is “Don’t worry, we will see you all right at the end.”

4 After Finishing the Work

4.1 Final Account

4.1.1 Get this sorted and agreed as soon as possible.

4.1.2 If you have been issuing “true value” interim valuations then the last one should be the final account document.

4.1.3 Beware cut off dates for settling the final account – make sure that you are on time.

4.2 Certificate of Practical Completion

4.2.1 Make sure that the Contractor issues this on time.

4.3 Retention

4.3.1 The Certificate of Practical Completion will trigger the first half of the retention release.

4.3.2 If the Contractor says you have to wait until he has got his retention then it is probably illegal and worth pursuing.

4.4 Adjudication

4.4.1 Think before you start and consider the following:

4.4.1.1 How much is it worth?

4.4.1.2 What will it cost me to adjudicate?

4.4.1.3 What are my chances of success?

4.4.2 This is known as the William Hill formula.

4.4.3 The general rule is that if your claim is less than £35k it is not worth the cost and effort to adjudicate.

4.4.4 Alternatively the threat of an adjudication is a strong bargaining position as the Contractor will be facing the same costs that he will not recover and there is a chance that he will be paying a proportion of the adjudicator’s costs.

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4.4.5 It costs about £350.00 to appoint an adjudicator and you can settle or withdraw at any time.

4.4.6 Always get professional advice before making any decision on adjudication.

4.5 Mediation

4.5.1 It is usually a good idea to attempt a mediated settlement provided both sides seek a reasonable outcome.

4.5.2 A qualified mediator will usually cost between 3.5K and 5K and his determination will not be binding.

4.5.3 My definition of a successful mediation is when both parties are equally pissed off.

5 Wrap Up

5.1 It’s Bleeding Obvious!

5.1.1 I agree.

5.1.2 Most of what I have written is known to most and followed by some but that does not mean it is irrelevant.

5.2 Get Advice

5.2.1 If you don’t know what you are doing ask someone who does.

5.2.2 There is no such thing as a stupid question but you may get a stupid answer – cheap is not always the best.

5.3 Credit Check

5.3.1 For any new client it is good sense to carry out a reliable credit check.

5.3.2 Ask around.

5.3.3 Walk away if not satisfied.

5.4 Don’t Upset the Contractor.

5.4.1 This is the response I get when I ask “Why didn’t you send in the notice?”.

5.4.2 The Contractor is delighted because you have made it easier for him to steal your money.

5.4.3 It is the Contractor who set out the rules so why should he be upset if you follow them to the letter.

5.5 Back to Back

5.5.1 No one really knows what this means as there is no settled definition.

5.5.2 It is usually understood that where things are not covered by the sub contract then the Contractor takes the place of the Employer and the Sub Contractor moves up to replace the Contractor under the terms of the main contract.

5.5.3 Mutatis Mutandis – look it up.

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5.5.4 My advice is to avoid them if at all possible.

5.6 And Finally

5.6.1 It is best if your dealings with the Contractor are:

5.6.1.1 Honest

5.6.1.2 Straightforward

5.6.1.3 Correct

5.6.1.4 Firm

And

5.6.1.5 Determined