Contract Awareness – Our Top 5 Tips

1 – “Oh no we won’t”, “oh yes you will”

When reviewing a contract on behalf of a client (and hopefully its not a scanned pdf copy), we search for some key phrases, these are “you must, you shall, you will” – why do we search for these phrases you ask? It is simple, we want to know what the client we are working for has to do, or more importantly what entitlement they will lose if they do not do what the contract states they have to. Once these clauses are identified they can be managed and by managed we mean procedures can be put in place that will allow them to comply with those clauses and avoid losing their entitlement.

2 – “What have we told you? You will not”

Similar here to the “you must, you shall, you will”, there will be clauses in the contract that will outright deny your business the opportunity to any entitlement for recovery of time and or cost under the contract. These clauses will, more than likely, include the following phrases, “you shall not, you will not”. When these clauses are identified, a simple solution, providing the change to the clause makes sense and will allow you the opportunity to recovery under the contract, is to remove the word “not”. A simple strikethrough of the word “not”, will change the whole meaning of the clause.

3 – And they’re off

What does the contract state as the Commence Date for your works and just as important, what date is stated as the Completion Date for your works? It is extremely important to identify these dates from the contract. The contractor should check the following:
a) has the Commencement Date already passed? If so and the contractor can determine or knows when they will start, they should change the Commencement Date so it reflects the correct position, and
b) can the work be completed in the time available and by the Completion Date? If not, the contractor should change the Completion Date to reflect the date it believes it will complete the work – note if you have changed the Commencement Date you are likely to have to change the Completion Date.

4 – Money (“that’s what we want”)

Cutting to the chase, a contractor needs to be paid for the work it has done. In order to be paid it must follow the procedures established in the contract under the payment clauses. Aspects to look out for are as follows:

a) lookout for condition precedent clauses in respect of payment, these clauses may include specific requirements for the issuing of an application for payment, such as, “for the application to be valid it must be submitted on the application date” and “for the application to be valid it must be sent by first class post only to the registered address stipulated in the these documents”

b) lookout for any contractual requirement to re-submit the application for payment as a Payee Notice in Default of a Payment Notice – basically you may need to submit your application again, if your client does not submit a Payment Notice.

There are other aspects, but contractor should look to “control the controllables” and this includes identifying what they need to do to get the money in. Ask yourself the question, “what do I have to do to get paid?” And once you establish this, make sure you do it.

5 – I’m a contractor, get me out of here!

What are you going to do if you do not get paid? What are you going to do if you are not being given access to do your works? These are two common instances that occur on construction projects. Often the contract will provide no entitlement for the contractor to terminate the works for non payment and or failure to be given access to carryout and complete the works.

Yes there is a entitlement under the Act to suspend works for non payment and yes there is likely to be a clause in the contract which allows the contractor to ask for more time to complete the works when there is a delay on site, but what if the payment never comes in and what if the date for access cannot be given? There may be opportunity at Common Law to do something (terminate the contract), but it could get messy.

When asked for help by contractors experiencing these issues the first thing we consider is the termination section under the contract. 99 times out of 100 the contractor has no contractual entitlement to terminate. The entitlement to terminate remains with their client. Contractor’s need to avoid this and seek to include termination rights to give themselves a way out. A termination clause must be carefully worded and most likely cross-linked to other clauses in the contract.

The above examples are by no means exhaustive. Contracting (agreeing and delivering a project under a construction contract) can be extremely complicated and stressful. It is a must for contractors to ensure that they start off on the right footing. This does not always mean wholesale changes to the contract, it means being better educated and better prepared and being willing to dig their heels to have changes made to the contract, where deemed it is to important to proceed without. A tough decision for all of us, but a necessary one, perhaps?

0161 711 0844 (Manchester)

020 3011 0144 (London)

info@drakeqs.co.uk

MEP Estimating – Our Top 5 Tips

1. Assess the tender enquiry straight away

Okay, well straight away might be difficult, but it should be a priority. It is a priority, as you need to identify the tender return date (TRD) and also to gauge the size of the project, the latter because this will inform you of the amount of effort needed to produce the quotation.   You then need to decide if you can submit a quotation, which you are prepare to standby, by the TRD.

2. Go out to the market 

Once you have decided that you will return a quotation, you need to request prices, from any named manufacturers, specialists or subcontractors, listed in the tender documentation.  From experience it is often the case that those named, are late in providing their price.

3. Start and finish the take off

If you want to submit an accurate quotation it is very important to ensure that the take off for the labour and materials aspect of the estimate is as accurate as it can be. Often the take off is overlooked and less accurate quotations are produced.

This can be risky in two ways:

1) you ‘over allow’ for labour and materials as you take a guess – this makes your quotation too high or

2) you ‘under allow’ for labour and materials as you take a guess – this makes your quotation to low.

4. Collate and assess the information 

As prices starts to arrive from those named in the tender documentations, they need to be checked to ensure that the price is a) based on the most recent drawings, b) it satisfies the requirements of the tender documentation, as defined by the Employer/Client and c) it does not exclude elements of work that you assume it will include.

5. Appraise the quotation 

Sit down with a colleague(s) and objectively assess the quotation before it is submitted.  Have you allowed for all items required? Have all prices been received from those named? Have you made any assumptions due to missing information and are those assumptions sensible and has a sensible monetary allowance been made for them? Does the quotation set out precisely what the price is based on, namely what documents from the tender documentation have been priced? Does the quotation clearly exclude the works you have made no allowance for?  

All of these are key considerations that should not be overlooked. Final note, it should be in the forefront of the estimators mind, that the submitted quotation is the probably most important document that will pass between their company and their client, not dismissing the final account statement of course, therefore it has to be right.  If the project is secured the Operation and Commercial departments will fully rely on the submitted quotation when planning the delivery of the project.

https://drakeqs.co.uk/services/estimating/

0161 711 0844 (Manchester)

0203 011 0144 (London)

info@drakeqs.co.uk

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…)