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Before you sign on the dotted line…

Entering into a contract is a serious business which requires careful attention to detail.
Barry outlines seven key things to check.

1 Who are you actually contracting with?
How much do you actually know about the organisation you’re getting into a contract with? More importantly will they be around to pay you when the time comes?

Being willing to place an order with you is only one small part of what you should be looking for in a relationship with a contractor or customer. A customer who’s likely to become insolvent, or who can’t or won’t pay, is worse than no customer at all.

You cannot rely solely on the apparent size of the customer. Not all large companies pay their debts on time and some are the worst payers of all. As a minimum you should check their financial details, but I would advocate making as detailed an enquiry as possible from other specialist contractors who’ve worked for this organisation.

And don’t be shy about asking StreetwiseSubbie because our consultants may have already come up against your prospective customer.

2 Scope of the works
Again, this may sound obvious, and I accept it’s a chore, but you must carefully check that what you thought had been agreed during the tender and negotiation pre-contract period, has actually been properly incorporated into the contract.

Check the contractor or client hasn’t added in references to documents or specifications you haven’t seen and be wary of phrases such as ‘necessarily implied from’.

I’ve seen this blatantly used by a contractor to deliberately add works into my client’s scope that my client had definitely not priced. And at a seminar where I used this example, one of the delegates told me about his son who was shown how to use this very technique while training to be a QS with one of the major contractors.

3 Time/programme
First check whether you’re going to have one start and finish date or are going to have to complete the work in sections. If the work is to be completed in sections, then you need to be especially careful.

Make sure the start date and any notice to start period is what you agreed and be wary of large ‘windows’ for starting the works. I’ve seen clients being asked to agree to a three-month window for starting the works on a weeks’ notice.

Make sure the period for carrying out the works is clearly stated and confirms what has been agreed. Don’t agree to ‘work in accordance with the Contractor’s programme’ or ‘as per our site requirements’ or any other form of words contractors can twist the meaning of and use against you.

4 Price and discount
Check that your price has been properly incorporated along with any tender summary or amendments and clarifications that have been agreed. If you’re relying on any qualifications in your tender, make sure they’re not ‘lost’ because of terms such as ‘…the sub-contractor acknowledges all terms and conditions of his quotation are excluded’.

If you negotiated a one-off discount on your price to win the job then make sure the contract clearly states that this discount doesn’t apply to the valuation of work instructed as variations.
In days gone by (that unfortunately I’m old enough to remember) Main Contractor’s Discount was linked to prompt payment. There’s no such provision in most modern standard form contracts. So, if the contract mentions discount make certain you know what it applies to and how it will work in practice.

5 Payment terms
Make sure that you understand how long the payment period actually is. These days contracts normally refer to a ‘due date’ and a ‘final date for payment’.

For example:

  • 21.2.1 The first payment shall be due 30 days after the sub-contract valuation date next following the date of commencement of the sub-contract works.
  • 21.2.2 Interim payments after the first payment shall be due 30 days after the sub-contract valuation dates thereafter.
  • 21.2.3 The final date for payment for the first and interim payments shall be 30 days after the date when they become due.

Now, you could be forgiven for having skim read this and thought it’s a 30-day payment period. What it actually says is that the first payment and the following interim payments shall be due 30 days after the sub-contract valuation date. That isn’t due in the sense that it is ‘due’ for payment on that date.

So, the payment becomes ‘due’ 30 days after the sub-contract valuation date. The final date for payment for the first and interim payments shall be 30 days after the date when they become due.
In other words 30 days plus 30 days is 60 days from the sub-contract valuation date.

In this particular instance you should also be clear that the contract sets out the sub-contract valuation dates because that’s what triggers the payment sequence. Make sure these dates are only a month apart they could quite easily be longer.

You should also ensure the sub-contract valuation dates go on beyond the end of the planned sub-contract period, and if the works are delayed you should ensure that an extended list of dates is agreed.

6 Design liability
As specialist contractor you will be liable for any design you provide if that design subsequently proves to be faulty.

Unfortunately, it’s all too easy to get this wrong. Similarly, this is one situation where it isn’t necessarily what the contract says, but what the contract doesn’t say that gives rise to the much more onerous standard.

If the contract is silent about design liability, then your liability will be the far more onerous standard of fitness for purpose.

Why is this so important? Well, fitness for purpose basically means you’re guaranteeing your design will satisfy the end users’ needs irrespective of what you did or didn’t know about his business and irrespective of what it says in the enquiry or specification.

A major consequence of this onerous liability is that it’s highly unlikely your professional indemnity insurance will reimburse any resultant losses where you have failed to provide the guaranteed result. In other words, they will void your cover.

7 Dispute resolution
Last but by no means least you need to know that your rights haven’t been compromised by contractors or clients.

If the contract between you and the contractor or client is subject to the Construction Act (The Housing Grants and Construction Act 1996) the contract should have certain provisions which provide some degree of protection. But beware that these haven’t been negated by the specific words of the contract.

8 Suspension for non-payment
Exercising your right to suspend performance is a very effective way to get paid.

The right to suspend may not be exercised unless you have given written notice of your intention to suspend performance. The period of notice is the bit the contractors will change to make it more difficult for you. The time period in the act is seven days but there’s nothing to stop them extending this period to 14, 21 or even 90 days.

9 Adjudication
Adjudication is a statutory procedure by which any party to a construction contract has the right to have a dispute decided by an adjudicator. It’s intended to be a quick process and it can be cost effective when handled properly.

It’s normally used to obtain payment but most types of disputes can be adjudicated.

It’s a very quick process and the adjudicator must generally decide the dispute in less than 42 days.
The adjudicator’s decision is temporarily binding and can be enforced by the courts but in the vast majority of cases the parties accept the decision as binding.

It’s no longer as easy as it once was for contractors to negate the adjudication provisions, but some will still try. Because make no mistake, most contractors when faced with a strong case that can easily be adjudicated will prefer to negotiate.

As always if we can help with any of this, don’t hesitate to give us a call or send us an email.
01773 712116
Barry Ashmore is managing director
and co-founder of StreetwiseSubbie.com

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