As a Contractor engaging with a Building Employer or another Contractor in a construction contract carries risk, reducing that risk is important. The construction industry has by far the greatest number of disputes than any other industry, 95% of dispute consultants are construction related. There are a lot of cowboy Clients and Contractors out there and in the typical aggressive food chain web of building firms completing any one project it is a miracle anything gets built. Cowboy practice is encouraged by a total lack of contractual procedures and commercial management plus it makes it difficult to remedy when the streetwise cowboy tires it on.
Why would you as a Contractor put your entire livelihood on the line without engaging in commercial professional advice or understanding what the paying party can do to you if you sign their onerous terms of contract? Informed negotiations, legal advice, signed contracts, actions, notices and contractual procedures are much better than Armageddon for your business when payment stops, claims start, and blame forthcoming backed often by instant adjudication. It is essential that appropriate payment, quality, defects, late payment and ADR clauses to name but a few, are in place to assist when trouble begins. You must take your contractual position and commercial procedures very seriously to reduce the risk of failure and ensure success.
Cowboy practice exists due to people paying no attention to Commercial Contract Procedures and leaving such formality out. Our guidance and tips demonstrate the areas where commercial savvy is required to avoid being a victim of Cowboy Clients or Contractors.
Top 10 Tips
Arbicon can ensure that:
1. The other party is screened for identity, creditworthiness, and reputation before you start.
Who is the other party legally? Do they exist? Are they in the UK? What assets does the other party have and what trading record do they have? What is their credit rating? Can they pay? Is the other party insolvent or at risk of it? What work have they done before and for who? Do you need a personal guarantee from the director of the firm? There must be security to sue the other party if you need to make a claim against them. Arbicon will assess whether the other party gets past first base.
2. An effective detailed Construction CONTRACT is drawn up and negotiated before you start.
Has the Price, time to do the work, design and scope of work to be done been fully defined and detailed? Who has what responsibility, e.g., design? Does the contract suit the project? Have essential terms been incorporated to keep in control of the work as set out below? What amendments are there? Are there any illegal or onerous killer terms being imposed? Is there a letter of intent and what does it mean? Do you need to sign a contract when your terms have already been incorporated by starting on site? Do you need someone tough and knowledgeable enough to negotiate? Arbicon can negotiate and draw up the contract.
3. Payment terms must be defined to pay for what is done.
The contract defines and guarantees payment and rights of the parties on where how and when payment is made. The Construction Acts also make it mandatory that payment must be done and notified at the specified times. If payment applications are ignored, they become the sum due and easily enforced in adjudication as the value claimed cannot be defended until paid in full or in the final reckoning. Arbicon are experts in the legal right to payment under construction contracts.
Advance payments, in the case where the Contractor deals with suppliers and subcontractors should be avoided as this will encourage the Cowboy to run off never to be seen again. Arbicon advise never to pay for anything up front. Pre-agreed interim sums should be avoided, and interim values ascertained on the work done only. Valuation of all sums due for payment can be done by the Arbicon professional.
4. Quality control by professional monitoring of the work.
Rubble buried where it shouldn’t be? Plastering over crumbling walls? Uncertified Electrical and Gas work? Wrong materials and products not fit for purpose? Are materials supplied by the Client substandard? Essential bits missing leading to collapse and cracking? Don’t get drawn into shortcuts and savings you will be blamed by the cowboy. If you must accept a wrong, make sure it is pointed out in writing that you warned them and objected! Cheap tricks, cover ups and shortfalls in products and workmanship will not happen if Arbicon are employed. Such problems will be easily identified by the professional and dealt with through the rectifying powers in the contract.
5. The work is properly completed and handed over on time.
Is there a start date, contract period, programme and completion date agreed in the contract? Is there a liquidated damages clause in the contract to avoid or to charge the other party for late completion? It is essential that any liquidated damages liability is passed down the chain. Every day that the project overruns a charge will be imposed unless no liability can be proven. The contract should also clearly define what is meant by completion reducing the risk of being blamed for delays by the cowboy.
6. A defects correction procedure and retention clause are incorporated into the contract.
The work is complete and the building in use, there are defects, but the other party will not fix them, what do you do? Alternatively, the cowboy Client is blaming you for defects and not paying up. Make sure there is a defects correction procedure and a retention clause, retaining a portion (normally 3 to 5%) of the total sum due to the other party. A defects period is normally 6 or 12 months in which the other party or you must rectify defects. The retention is held interest free and there should be a clear procedure to release it. Deductions in payment for defects should not be done whilst there is a retention held unless the problem is significant! If you are the payer, the defects procedure should also include the power to employ others at the other party’s expense on failure after 7 days to rectify defects.
7. Design insurance and guarantees are obtained.
If you have design responsibility, a lender or third-party investor will impose insurance and warranties on you, this can be an unforeseen expense. The Contract can impose this requirement as a condition to completion. If major problems later occur the blame will be levelled at the designer or the collateral subcontractor/supplier, covering both aspects with insurance and guarantees can help rectify any problems.
8. Termination/ Repudiation/ Suspension of Works are legally administered if necessary.
If the other party stops you working or if a subcontractor does not perform or progress the works properly and diligently, walks off site, does not turn up or work is required to be stopped. Walking off-site is not recommended unless suspension or termination is valid. Suspending the works can be done if you have not been paid, but you need to give 7-days clear notice in the prescribed form, if you get this wrong it can be fatal. A properly drawn up contract clause is required to suspend or dispense with the other party and if a subcontractor supplement the works and employ others at the other party’s expense. Damages can be recovered and prevented effectively should you be the injured party. Arbicon can advise on suspension notices, termination clauses and repudiation, which can be a very tricky legal area and is a common problem. The argument is always about who is the contract breaker/repudiator the winner then gets the damages.
9. An effective Adjudication and Late Payment procedure should be in place should disputes arise.
In Commercial Contracts, if you need to claim against the cowboy, you have a statutory right to adjudication, payment, and late payment. If the Contract has no such clauses the implied terms of Statutory Scheme for Construction Contracts and Late Payment Act kick in. There is an absolute right to adjudicate at any time even if there is a Court case proceeding, it cannot be stopped, and the case is decided in 28 days with the award legally binding. Mr cowboy will have nowhere to go! If the Late Payment bites, that is, it is in your contract terms or no late payment provisions exist, then you will be entitled to simple interest at 8% over base and all your reasonable costs of pursuing the debt. For example, recovery of Arbicon fees. There is no need for Court, you can avoid all the disproportionate legal costs and months of misery of a Court case by engaging Arbicon to resolve the problem commercially in 28 days. Court is suicide, Mr Cowboy will lead you on a costly dance in Court, if Mr Cowboy has no money, you will go through the mill for a long time spend a fortune on legal costs that are likely to be unrecoverable and at the end of it Mr Cowboy cannot pay you even if you win. The prolonged agony for your nerves, detriment to your health, wallet and personal life can last for months and years if you go to Court. The prospect of this reality often tragically leads to firms giving up when they do not need to. Arbicon are experts in construction contract claims and adjudication, ADR and construction dispute resolution and will evaluate your case.
10. The formality of using a third-party professional stops cowboy behaviour!
Using a third-party professional such as Arbicon instantly makes the other party take matters seriously. Commercial management protecting your interests or remedying problems normally relating to payment are effectively dealt with. Arbicon’s team are, when it comes to construction contracts, very experienced, dual qualified legal surveyors and are at a much higher level of skill than other dispute consultants. Knowing what goes wrong ensures that Arbicon know what goes right!
If you would like to learn more on how we could help you avoid cowboys fix problems, please contact us on email@example.com or contact Arbicon at any of our 4 offices below.
0113 512 9004 Leeds