WATCH OUT FOR ONEROUS CONTRACTS

I COULD probably fill a whole issue of CFJ with the onerous terms we’ve come across in practice. Onerous terms usually occur in the client or contractor’s own ‘non-standard’ documents but can also arise as amendments to Standard Form contracts. These terms are deliberately designed to reduce your entitlements and increase your obligations.

They will certainly make your life more difficult and could end up costing you a substantial amount of money. And in the worst-case scenario they may even cost you your business!

The simplest way to put onerous terms into context is to ask yourself this question: ‘Why, when there are all manner of Standard Form contracts around such as JCT, NEC and MF/1, does anyone need to produce their own terms?’

The simple answer: It isn’t for your benefit!
The smart flooring contractors identify these changes at enquiry stage, or during the process of getting into contract, and seek to restore the standard terms by negotiation.

Obligations regarding time
A phrase frequently found in non-standard contracts is ‘time shall be of the essence’. That means obligations regarding time are fundamental terms of the contract, and if they’re breached by the subcontractor the contractor has the right to claim damages but also to terminate your contract.

You should also beware of general obligations requiring you to comply with the contractor’s programme and all of his directions regarding the order of the work, acceleration etc.

Such clauses mean you’ll be at the beck and call of the contractor and will find it almost impossible to claim for delay and disruption.

Design
Ensure you know exactly what your design obligations are. And exactly what design documents you’re working to. A one-line amendment, giving precedence to the ‘room data sheets’ cost one of my clients £30,000.

Compliance with the main contract
If you don’t know what it says how on earth can you price the risk of complying with it? Don’t accept provisions which make you responsible for everything that’s in the main contract. The subcontract needs to accurately reflect what you have priced to do.

Documents and errors and discrepancies
A common amendment is to make you responsible for all errors and discrepancies in the documents, even those provided by the contractor. They do this by requiring you to point out errors or discrepancies, then instructing you which requirement applies, but without adjustment to the subcontract price, or the completion date.

Payment
The first common misconception relates to cash discount. It used to be the case that 2.5% cash discount was deductible only if the main contractor paid within the period required by the contract.  It was nothing more and nothing less than an incentive to prompt payment. Unfortunately, the contractor now wants to take discount irrespective of when he pays. If the contractor wants a discount, make sure it’s conditional on prompt payment.

The second and simplest amendment is simply to lengthen the payment periods. They will do this by increasing the period up to the due date and/or the period from the due date to the final date for payment, or both.

This is combined with a very short period (usually one day) prior to the final date for payment to issue the pay less notice. A very deadly combination.

Retention
Check the retention periods carefully or it might literally be years before you get your retention money back.

Set-off
The Construction Act doesn’t prohibit set off against payments, but a pay less notice must be given detailing the amount to be paid and how it’s calculated. And watch out for linking set off to other contracts and ‘anticipated’ or future costs.

Insurance, protection and damage
Contractors may attempt to reduce their insurance premiums by making you responsible for damage to the subcontract works. Even that caused by his own negligence.  

Under a standard form the subcontractor is protected by the contractor’s policy if the damage is caused by one of the ‘specified perils’ which include fire, explosion and water damage, even if the specified peril is caused by the subcontractor’s negligence.

As your insurance policies will normally be worded to cater for the position under the standard forms, it’s vital such matters are picked up at the tender stage, or you could discover you’re responsible but are uninsured.

Attendance and environmental conditions
The provision of appropriate environmental conditions and attendances by the contractor is something which must never be assumed. Even under the standard forms of subcontract, it’s vital you’ve identified at tender stage the conditions in which you expect to work and any items of special attendance you’ll need, who’ll be responsible for providing them, and that all this is properly incorporated into the subcontract.   

Dispute resolution
Provisions may be inserted to attempt to restrict your entitlement to seek a legal remedy to any dispute which cannot be resolved by negotiation.  You should ensure you know and understand how disputes will be resolved if they arise, no matter how well you currently get on with the contractor.

Conclusion
Watch out for onerous contracts and onerous amendments to the standard form contracts. Don’t just accept what’s put in front of you. Negotiate! You’d be surprised at how many contractors will be prepared to change when you show them you know it’s onerous.

And if you’re not sure what that wording means (and let’s face it – contracts are tricky), or you want it done for you, give us a call.
01773 712116
info@streetwisesubbie.com
www.streetwisesubbie.com