Estimating – “You’ve got to be in it to win it”

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Estimating is often a complicated process. Although many would disagree with this statement, one cannot hide from the fact that to prepare a detailed, accurate and reliable estimate for a construction project the estimator must follow a procedure, which involves a detailed and thorough take off from the drawings, whilst considering the particulars for the project, as set out in the specification and any other ancillary documentation such as reports and surveys. Aside from this, the estimator must also obtain quotations from merchants, specialist manufacturers and specialist subcontractors.

Following this process often takes a lot of time and resource, and as a consequence many contractors and subcontractors, choose to not be as thorough as needed when estimating to secure new projects.

Thus it is understandable why many contractors and subcontractors, when choosing to not devote the necessary time and resource to estimating projects correctly in the first instance, encounter financial challenges on projects that they have secured.  

Be thorough with your estimates

After speaking to many contractors and subcontractors in our industry, the financial challenges encountered are as a direct consequence of missing off aspects of work from their estimates, examples would be a key item of plant, a specific section of work and in many cases, under estimating the amount of work relating to certain tasks and activities.

detailing a builder's estimateYet estimating is a necessary evil, as without submitting an estimate for a project you can not be in the running to secure the work.  “You can’t win the lottery, unless you a buy a ticket – you’ve got to be in it to win it“

So what do contractors and subcontractors do? Price a job thoroughly, thus knowing that their price is sound and reliable or, do they adopt a different and more commonly used approach the “back of a fag packet“?

Both of these methods have financial implications, the more detailed approach is going to take longer and expend the valuable resource of the tenderer up front, yet there is more financial certainty down the line with this approach so this is less risky. Whereas a quick price is cheaper upfront and potentially significantly riskier down the line… Down the line obviously being once the project has been secured and it becomes apparent that there are deficiencies in their price.

What is the best approach for Contractors and Sub Contractors?

The answers perhaps lies by asking a few simple questions and then making a few simple decisions:

Has the Company whom is requesting an estimate secured the work?

If the Company has not secured the work then they are in a competitive tendering situation, which could mean, by assuming that there are five companies tendering to the secure the work and each company has requested an estimate from five different Sub Companies, that you have a one in twenty five chance of being successful. Whereas submitting an estimate for a company whom has secured the work could result in better odds, such as one in three or one in five.

Have we worked for, or submitted estimates for work for, this Company before?

It is always satisfying to receive an enquiry from a new Company. From a positive perspective this can mean that you are being recognised for the good work you do or you are being recommended as a competent Contractor or Sub contractor.  It is important to determine this by asking the new client “why us?”.  From a negative perspective you could be being used as “a cover price” (an estimate used to check the value / validity of an estimate the Company has already received), or because the Company is not a good client and their current Contractors / Sub contractors do not want to submit estimates to them.  These two possibilities also apply to the situation where you have received projects to estimate for from the Company in the past, but have not been successful in securing one or more of them.

Can we return the estimate in the time frame available?

getting a builders estimate in on timeIf you are being more selective in your estimating, are you certain that you can devote the necessary time and resource in order to produce a reliable and accurate estimate?  If the answer is no then you will end up submitting, should you try to work to the deadline, an estimate that has large aspects of it that are based on the “back of a fag packet” approach.  This is obviously something you have tried to avoid by being more selective in your tendering.

If we are successful in securing the work, can we be successful in delivering it?

This is no doubt a key question that needs careful consideration.  Firstly consider if you have the capital to maintain a positive cashflow, also consider if you have the resource either directly employed, or within your current supply chain to deliver the project, then consider how you would manage the project, especially if the project is outside your normal working area.  There are other considerations, yet these are some of the very important ones.

Perhaps if Sub Contractors were more selective in the projects they tendered for then they could devote the sufficient time and resource required to prepare detailed and accurate estimates for projects.  Rather than the common approach of submitting estimates for every project that lands on their door mat / in their inbox.  Adopting the latter approach will ultimately lead to, if you are not already doing so, preparing estimates on the back of a fag packet, which poses more risk and uncertainty to your business.  You could always ask yourself those four questions and still estimate the works quickly, yet, as set out above this is a very risky approach to adopt.

So taking the above into account where does this leave us?

Is it a case of paying upfront for the detailed estimate, which mitigates financial exposure or, is it a case of trying to limit financial exposure, as and when the shortcomings of the quick estimate become a reality on the project?

A conundrum, yes, but if you are in this situation, it is a good one to have.

If you need any professional assistance with estimating please get in touch; we will be more than happy to discuss your project and wider estimating needs and how we can assist you.

Suspending works for non-payment – subcontractor strikes back!

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dqs1“Why do Contractors think it is okay to not pay you, yet still expect you to continue to work on site as and when they want?” This was the question thrown straight at me before I could even shake the hand of the person who asked it.

“So you’re having payment problems then?” I answered.

“Well what can we do?” I was asked.

“Suspend works on site” I responded.

“Better in fact, are they pushing for you to start works in a specific area?” I asked.

“Yes”, was the sharp response, “they (the Main Contractor) need us to start works in the Main Hall”.

Sensing his frustration I said, “I’m glad you told me that, this is good news for you.”

“Why?” he asked, still sounding annoyed but looking intrigued.

At this point I removed from my shoulder bag, a copy of the  Housing Grants, Construction and Regeneration Act 1996 with the sections updated to take into account the changes introduced by Local Democracy, Economic Development & Construction Act 2009, and handed it to the client. (more…)

Variation Accounts – improve your chances of getting paid

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In Contract Law, the burden of proof required for proving a claim is based on a simple legal principle known as ‘on the balance of probabilities’. In layman’s terms this means, based on the supporting evidence, that what you are claiming is probably correct.

So what does this have to do with variation account preparation, I hear you ask?

It’s simple; a well-prepared variation account is one that includes all of the relevant supporting evidence to confirm that what has been claimed for in the variation account is true and accurate and represents the value of the claim, consequently on balance it is probably correct.

From experience many small subcontractors fail to submit a detailed variation account within its final account; consequently they end up losing out on thousands of pounds, as they make final account settlements with the contractor for far less than is actually due.

The most severe example of this occurring that I can recall is as follows; in 2011 a small inexperienced mechanical services subcontractor who had been working for an extremely large experienced mechanical services subcontractor, on a flagship project in Old Trafford ,Manchester, agreed to a £40,000.00 reduction in the final account sum (I know what you’re thinking… ‘Idiots’ and you’re not wrong to think that – but we all know the pressures that are exerted by Banks). (more…)

Dispute Resolution in Construction – Getting It Right First Time

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Recently we were called in to assist a Contractor with a dispute on a refurbishment project in Liverpool City Centre. The dispute concerned faulty workmanship carried out by one of their subcontractors, which was in need of replacing. The faulty workmanship came to light following completion of the Subcontractor’s works and at the time of coming to light was two weeks away from Practical Completion.

The Contractor had received a final account application for payment from the Subcontractor, which they did not want to pay until the faulty work had been put right by the Subcontractor. They contacted Drake QS for immediate assistance.

The following conversation ensued: –

urlContractor: “We potentially have a major issue with a Subcontractor on a project for our most important client. There is an issue with their workmanship, but they don’t agree and they want paying. We can withhold the payment from them right? Do we need to write them a letter or send them an email?”

Drake QS: “Yes you do, but its effectiveness depends on the timescales for payment within the contract”

Contractor: “What do you mean?”

Drake QS: “Well you may have missed the opportunity to issue them with a valid ‘Pay-Less Notice’ because the date for doing so could have passed. Could you provide us with a copy of the contract between you and your subcontractor so we can check it for you?”

Contractor: “The Contract”?

Drake QS: “Yes; we need to see the order that you gave to the Subcontractor with the terms and conditions of the agreement between you and them, we can then advise you correctly”

Contractor: “oh right; okay we will send it across”

The Contractor duly emailed over the said document, which read: –

“Please carryout the works as per your quotation for the sum of £ xx,xxx.xx”

Due diligence in construction contracts

The alarm bells started ringing. This is a big No-No…. Contractors and Subcontractors, you should never do this, you should never place an order for works, which states, “Please carryout the works as per your quotation”. If you do this you are potentially incorporating their terms & conditions into the agreement between you and them and you could be legally bound to them.

In this instance, there were no other terms attached to the order nor was there any reference to any other terms, which applied. It simply stated “Please carryout the works as per your quotation for the sum of £ xx,xxx.xx”

Drake QS then requested a copy of the subcontractor’s quotation.

We were right to be concerned, because upon receipt the quotation we found a set of terms & conditions that were extremely favorable to the Subcontractor, so much so that they bordered on breaching the Unfair Contract Terms Act 1977.

These onerous Terms & Conditions were the basis of the agreement between the Contractor and the Subcontractor and when we explained this to the Contractor they did not know the potential ramifications of placing the order with the Subcontractor in the manner they had done.

Fortunately for the Contractor, after a review of the payment section of the Terms & Conditions and considering these against the date of the Subcontractor’s application, there was just enough time available to serve a valid ‘Pay-Less Notice’ (which we assisted them with drafting) in accordance with the Local Democracy, Economic Development and Construction Act 2009 (LDEDC Act 2009), also known as the Construction Act. (more…)

Subcontractors – Do not be afraid to demand payment from your client(s)

Over recent weeks, I have had several conversations with subcontractors, whom I will not mention, and all of them have been asking for advice about what they should do, as their client’s had not paid them.

We all know that this is not an unusual occurrence in the construction industry; in fact it is pretty much commonplace on most construction projects.  However with profit margins on projects almost non-existent, a subcontractor’s leeway for receiving payment later than they should is simply a no-no.  Therefore it is all the more important to get paid on time and to get paid what has been claimed for in an application for payment / final account.  This will help to maintain cash flow and keep the company trading.

Knowing this, why do subcontractors choose to not enforce their contractual right to be paid?

“We are worried we will damage our relationship with them (the client)”,

“They (the client) said on a previous job that if we take legal action then we will get no more work, so we don’t want to do it on this job either”,

“They said they haven’t been paid so they can’t pay us”.  

These were some of the answers to the question that I asked, “Have you considered enforcing the contract?” (more…)