“What’s the trap to avoid in Sub-Contract and how?…”
written by Alan Rutledge, edited by Wayne Brown
written by Alan Rutledge
Alan’s background …
I’m a Chartered Quantity Surveyor with some 53 years experience in the Construction industry.
Most of this time spent overseas from my native UK. And the last twenty of which were spent in the Lift and Escalator field. With particular emphasis on disputes and their negotiation/settlement.
I’m now retired but following the current trend of “re-cycled” as I undertake various specialized missions.
Alan’s experience …
I’ve worked for construction companies and clients/owners for over half of my career, and my expertise is manifold. I can see the contractual/commercial issues that commonly arise from several points of view. When faced with particular matters, it is important to resolve them because I believe the arguments become polarised. By this, I mean biased to the extent of previous experiences and successes on other projects.
Donning my Main Contractor hat …
Now I will don my Main Contractor’s hat and look at typical problems on various projects. In particular, those involving a Sub-Contract for Lift and Escalator/Moving Walks.
In case the smarter ones amongst you are keen to correct my writings, please note. This article has been generalized. I’m attempting to present typical issues which may (and probably will) arise. No one form of contract form is specified or referred to herein.
However, it is the case that contract forms do generally follow a pattern in terms of the various contract provisions. Enough of the boring stuff!!
Me, Main Contract versus You, Sub-Contractor …
For this article, I am speaking as the Main Contractor. And I am looking down on all Sub-Contractors (especially of the Lift and Escalator type) from my lofty station. You know that almost all Main Contractors take that view!
Straight away, allow me to say that people seldom learn from their mistakes (certainly in the construction industry). And that the wheel continues to be re-invented. Isn’t it amazing that the same errors occur on almost every project? On the positive side, it has provided me with a meaningful purpose over many years!
The seven deadly traps and sins …
Therefore, please allow me to give some scenarios that will, no doubt, be familiar. Hopefully, they will prompt you to smile when they arise on your next project. You might even take the hint and deal with them differently:
#1 Trap to avoid in Sub-Contract: Contract programme
There must be a specific duration to follow from start to finish and completion date on any project. However, as Main Contractor, I never want you to give details, sequences, and timing in such a document at the time of tender. Once submitted, this information might become a Contract Document.
And there is a good reason for that. When there is a delay (and there will be a delay), you might be able to rely on that program to stitch me up. All I want you to do is to give me a duration and a completion date. Within the Sub-Contract, I also want to express my ability to alter the sequence and timing to suit the works’ progress.
That would be fair to me and would probably give me enough latitude to avoid a disruption claim. Of course, you may refuse to allow this situation and may insist on a Sub-Contract program.
# 2 Trap to avoid in Sub-Contract: Progress…
As far as Lifts and Escalators (L&E) are concerned, my first task is to construct lift shafts and escalator pits on time. Thereby ensuring the chosen Sub-Contractor can commence its installation phase. Thus begins the first real L&E critical activity on-site. That activity leads towards the eventual completion of the Sub-Contract.
However, given the nature of construction, it is likely that they will not be timely. If on time, then there is the likelihood that it will not be within the Specification’s tolerances. You know how accurate Main Contractors and their concrete Sub-Contractors are! So, this is possibly the first instance of delay.
If the Sub-Contractor is sharp, he will have recorded the date of handover. And have measured the shaft dimensions and verticality in a timely fashion. Upon completion of this, he asked me to sign this record. Finally, he will have followed up with a possible claim for an extension of time, or at least he will have given notification.
Or he may not or may not have given it on time; of course, I will not prompt him. If there happens to be a delay in completing his work, I will look to lay the blame on him. That is what Main Contractors do!
# 3 Trap to avoid in Sub-Contract: Delays Generally…
Apart from the above example, there will almost always be other delays incurred during a construction project. It is not surprising, given the nature of the task. Architects/Owners may regularly introduce design changes. We may face adverse weather conditions, industrial disputes that affect the delivery of materials, political effects, Acts of God, etc.
The Main Contract Conditions foresee this. It provides for extensions of time (and recovery of loss and expense). Particularly where the cause is not through the Main Contractor (or the Sub-Contractor). However, those conditions are very specific in terms of timing and details.
As the Main Contractor, I will pass down those Conditions to you in your Sub-Contract (and perhaps make them even more demanding). Such conditions should be very carefully understood and followed by all.
# 4 Trap to avoid in Sub-Contract: Payment…
After all, this is what it is all about. As Main Contractors, we need to be paid by the client and, as Sub-Contractors, you need to be paid by us. So, we need each other! We need to apply for regular on-account payments based on work progress. And likewise, you need to apply to us for progress payments in a timely way.
We also need to receive applications on time and per the Sub-Contract Conditions. Most typically, this relates to the valuation of variations and any other additional claims/ payments. If you fail to do this, then your cash flow will suffer.
# 5 Trap to avoid in Sub-Contract: Deductions for various charges…
As Main Contractors, we are always on the lookout for ways to charge our Sub-Contractors. For safety violations, additional work we have completed for the Sub-Contractors, for power consumed, cleaning up charges. And all manner of things we can dream up.
Conversely, if they are smart and contest such charges with proper evidence, Sub-Contractors can avoid many of these charges. We may also compile a Loss and Expense Claim if we believe the Sub-Contractor has delayed us or has delayed the entire project’s completion date. It can be substantial and used as a reason for non-payment of the amount otherwise due.
The good news is that penalties are avoidable by completing sections on time and diligent and timely correspondence notifications. So often, the Sub-Contractor fails in this area and therefore misses the opportunity.
There is usually a situation whereby the the Loss and Expense of the sub-contractor can be claimed which incurred through delay. He should therefore be alert to this.
# 6 Trap to avoid in Sub-Contract: Insurance Claims…
There are Insurance clauses in every contract. It is often the case that the Owner/Employer takes out a cover for Contractors’ All Risks (CAR) on behalf of all parties. As Main Contractor, I will normally pass this benefit down to all Sub-Contractors, which is positive.
However, there is a caveat. There will be excesses payable for each claim made by any party. These excesses might well be larger than the claim itself (certainly in the case of a Sub-Contractor). Therefore, before claiming (as a Sub-Contractor), you may wish to consider;
- first, the value and
- secondly, whether the claim arises from the default of another.
If the latter can be proven to be the case, he should seek compensation from the offending party. That offending party may well see it as reasonable to claim through the Insurance. In that event, then you might avoid a claim and the resultant excess. I have seen such cases on numerous Contracts.
# 7 Trap to avoid in Sub-Contract: Completion…
The contract (or Sub-Contract) will define the meaning of completion. For the Main Contractor, this time or date will be on finishing all works. At this time, the Architect will have issued the Certificate of Practical Completion (PCC).
However, for the L&E, the equipment will have been completed and tested sometime before PCC’s date. As Main Contractor, I may have used some of the lifts (under Agreement).
Agreements like this are common where the rest of the finishing trades need transport after decommissioning building hoists and cranes. Therefore, I may try to delay the final handover until the Sub-Contractor completes cleaning/repairs and re-balancing. To avoid this, the Sub-Contractor should ensure that the Main Contractor has signed the Agreement for temporary use. And importantly that the conditions are clear regarding completion and handover.
It is also the case that the Employer wishes to use the lifts. However, they refuse to accept handover (PCC) because of frequent lift breakdowns. These breakdowns may be a result of the damage caused during construction use. Therefore, to avoid delay claims and the levying liquidated and other damages, records are essential.
The above is only a handful of likely scenarios during a building contract that might affect the L&E Sub-Contractor. Of course, there is no ready substitute for experience, but if you follow the simple rules of reading and understanding the Sub-Contract and follow it, you may save millions of dollars for your company.
Notes from your Coach …
Guilty as charged. As a former Construction & Project Manager I can definitely align with Alan’s comments and suggestions. And time after time we repeated the same mistakes.
Hopefully this short article will provide everyone with some great tips and insights on areas where we can improve.
I’ve had the pleasure of knowing and working with Alan for a number of his years spent in our tribe and thankfully, as he has had to come to our rescue more than once. Fingers crossed, as I’m hoping to interview Alan and learn more on what we can do as a group to better prepare and protect ourselves.
Until then, stay safe and keep learning!