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Roger Knowles Hot Tips!

Roger Knowles The Original Contractual Guru Returns! 

If you ask most people in the construction industry if they have ever dealt with James R Knowles or Roger Knowles they will have at least heard of Roger and the International Construction Contracts Consultancy that he built from nothing and sold 3 years ago to Hill International for £7 million!

A good many will have attended at least one of the thousands of training seminars that James R Knowles held, and some will have either employed Knowles to act on their behalf or have been on the receiving end of their work.

Although he is in his seventies Roger is still in huge demand on the international stage for lectures on contractual matters. He regularly tours the Middle East, Asia and Europe, and over the last three decades has personally given more than 1,300 lectures.

On behalf of Streetwisesubbie.com I am absolutely delighted to welcome him on board as part of our Virtual Team.

If you have time to read nothing else on this site you must read Roger's Hot Tips 

Best regards

Barry

 

Volcanic Eruptions!  

What's The Impact  For Specialist  Sub-Contractors?

 

The terms force majeure appears in a number of construction contracts, the JCT being a good example. If, due to a force majeure, work is delayed and affects the completion date, under a JCT form of contract, the contractor or subcontractor, will be entitled to an extension of time. But what is the meaning of force majeure? It is derived from the French Napoleonic Code. This being the case one may ask what is it doing in an English contract? Well you would need to ask the JCT and as it has been in the contract for such a long time, they may not have the answer.

The intention of the wording is to provide an escape from liquidated damages where unforeseen events have a dramatic impact on the performance of the contract. The matter concerned must be outside the control or responsibility of the parties.  A good recent example is the suspension of air transport due to the volcano in Iceland. Those with long memories may recall the 1970’s, when due to a miner’s strike electricity was available on only three days each week. Epidemics such as swine flu, had it taken off, would be a force majeure. Whether the current economic climate constitutes a force majeure is debateable.

What is required in contracts is a definition of force majeure, which is what occurs in most PFI contracts.  As for contract such as those produced by the JCT, where there is no definition, we will be left in some uncertainty as to whether a particular occurrence is or is not a force majeure.

Roger Knowles 23 April 

 

Limiting Your Liability!*

 

With the work situation in the construction industry showing no signs of improvement, there are still far too many companies chasing too little money.  Any overrun of the contract period will almost inevitably be met with a delay claim. The construction industry is unusual in having a liquidated damages provision, whereby when the contract is drawn up, it stipulates the amount of money per week or day the Contractor will have to pay to the Employer if work is completed late.

Before the Employer can start deducting money due to late completion, there are a few rules to be observed. 

First principles state that the daily or weekly rate must be a reasonable estimate of the loss or cost the Employer will incur if work finishes late. This sum must be calculated before the contract is signed.  Before consideration is given to deducting money, the Architect, Contract Administrator or Engineer, must have made a decision regarding any entitlement the Contractor may have to an extension of time.

Some contracts, for example those published by the JCT, require the Architect or Contract Administrator to issue a non completion certificate, which indicates that the Contractor has failed to complete on time. Without this certificate, no entitlement to deduct damages arises.

Once all this is in place (and assuming the Construction Act applies) the Employer, before becoming entitled to deduct liquidated damages, must serve a withholding notice as required by the Act. This notice must indicate the amount intended to be withheld and the reasons for the withholding. This notice must usually be given not later than 7 days before the final date for payment.

Subcontractors are in a different position because there is usually no liquidated damages figure written into the subcontract. If the Contractor intends to levy a delay claim, it will be a matter for him to prove that a sum of money has been lost or expended due to the late completion. There is no relationship between the sum claimed for late completion and the subcontract sum.

It is quite feasible for the sum claimed to be greater than the subcontract sum.  In like manner to the Employer’s right to deduct liquidated damages, the Contractor must serve a withholding notice if money is to be deducted from money owed to a subcontractor.

The Subcontractor is, with the agreement of the Contractor, free to include in the subcontract a financial limit on the amount the Contractor can claim, in the event of the Subcontractor completing late.

It may be considered that a main contractor is unlikely to agree to the inclusion of such a financial limit.  However an open ended potential financial liability may not be very attractive to Subcontractors, particularly where money is in short supply. A decision may be taken to walk away from the contract rather than take on the risk of financial ruin.

One would think that there is little point in the Contractor trying to enforce a claim which would result in the subcontractor going into liquidation, but in these difficult times they may seek to benefit from doing just that!

Roger Knowles 21 March

*Footnote: If you don't believe that you could be on the receiving end of a claim that could cost you your business then sadly you are mistaken. This is exactly what happened to a client who came to us recently! Unfortunately he came to us too late to save his company. Please don't make the same mistake.  


Find Those Hidden Profits!* 

With prices a rock bottom, it is necessary for Specialist Sub-Contractors to squeeze every drop of income out of all its projects.

 

There has never yet been a construction project devoid of variations, therefore this is a good place in which to make a start.

 

Most contracts arrive accompanied by a schedule of rates, for use in pricing variations, which often come thick and fast. The natural reaction is to price the variations at the rates in the schedule, where appropriate.

 

It is the “where appropriate” which is important. The wording in the contract is the start point in deciding if the schedule of rates is appropriate for pricing purposes. The JCT contracts clearly state that the contract rates should only be applied, when the work described in the variation when compared with the work described in the contract, is of a similar character, the conditions under which the work is carried out are the same, and there is no significant change in quantities.

 

There are a few ifs and buts here that need to be considered. Concrete in columns and beams cannot be classed as similar in character to concrete in foundations.

 

Undertaking work in soft and watery ground conditions cannot be regarded as the same conditions as working in firm ground conditions.

 

With regard to a significant change in quantities, a small increases or decrease can affect the manner and timing relating to the ordering of the goods  and hence the unit price.

 

That is not all. The JCT contract provides for payment of an extra, if other work is affected by the variation, such as a knock on effect which causes disruption. For example, an alteration to the blockwork may disrupt the plastering.

 

Finally if the variation causes delay, then the delay costs are recoverable

.

So come on, every additional pound secured in respect of variations, is a pound added to the bottom line.

 

Roger Knowles 26 February 

 

 

*Footnote: Please give this some thought. When work is in such short supply, doesn't it make sense to take full advantage of variations to maximise your profit margin on the work you do have.Please take a look at our Free Report on Variations. Simply click on this link. Barry Ashmore 

 

If you simply haven't got time to look for what you need or have a problem then why not use the Ask Streetwise or Streetwise Confidential  feature on this site to ask our Virtual Team of experts for help?

 

Records Records Records

 

Many subcontractors are struggling to make ends meet.
 
Once a job has been secured, following keen bidding process, the problem of making a profit looms. There are however some actions which can be taken to improve the prospects of a profit. It is essential to squeeze the last drop out of every contract, if a profit is to be secured.
 
One of the most important tools required if this objective is to be achieved, is the keeping of good records.
 
Verbal instructions given by Contractors to the subcontractor’s representative on site are a common. Most subcontractors have a system of confirming these instructions, usually referred to as CVIs (confirmation of verbal instruction). In the case of each CVI, it is important for a record to be made of any additional cost, delay or disruption which may result and a follow up letter sent to the contractor.
 
Records need to be kept of all work covered up, such as foundations and drainage. Where there are problems of access to parts of the site, it is necessary for a proper record to be kept.
 
Stoppages of work, due to weather, lack of instruction and the like should always be the subject of comprehensive records, indicating the times involved and the number of operatives and plant affected.

 

A proper note should always be retained of all operatives employed on site and those of any sub-subcontractor and also where on site they are working.

 

A proper system of record keeping needs to be developed by every subcontractor and its importance stressed to all concerned.  The keeping of good records is often regarded as a bind by many charged to undertake the task. It may be worth considering an award to be made, each year, to the site which retains the best set of records.

 

Roger Knowles 10 February 

 

*Footnote: If there is one message that I would like all Specialist Sub-Contractors to take careful note of, it would be this one! Please do not under estimate the immense power of good records. Barry Ashmore

 

Send Those Notices!

 

The weather for the past few weeks has been the worst for generations! 


Work on many sites will have been impossible and delays to completion inevitable.
 
If delay claims from Contractors are to be avoided, it is essential that an extension of time for completion is secured. A careful study of the contract is essential, if this objective is to be achieved.
 
Most of the Standard Forms of Contract require you the Subcontractor to serve a written notice, if you require an extension of time for completion. This notice must be sent within a time scale.
 
Some contracts require the notice to be sent within 28 days of the delay becoming apparent, others as soon as the delay becomes apparent, with lots of variations on this theme. 

 

If entitlement to a proper extension of time is to be secured, it is advisable to make sure the appropriate notice is served, as required by the terms of the contract.* It might be possible to secure an extension of time, in the absence of a proper written notice, but this requires a cunning legal argument which can prove expensive to secure.

 

Many standard contracts, however, are amended by the Contractor to state that a written notice is a condition precedent to the granting of an extension of time.

 

Therefore, failure to send in a written notice, where this type of wording exists, is fatal to the securing of an extension of time!

 

Roger Knowles 15 January 

 

*Footnote: Please do not ever allow the Contractor to persuade you that you do not need to serve proper notices. If you do then don't be surprised if he turns on you at the end of the job and blames you for the delay. If you don't think he would do such a thing please drop me a line and I will introduce you to lots of Sub-Contractor clients who have fallen into this trap to their substantial cost! Barry Ashmore

 

If you simply haven't got time to look for what you need or have a problem then why not use the Ask Streetwise or Streetwise Confidential  feature on this site to ask our Virtual Team of experts for help?

  

  

Subcontract Programmes

 

Time is always at a premium.

 

When entering into a subcontract, it is the norm for the subcontractor to have its time slot squeezed to fit into the main contractor’s programme.

 

When a time slot has been “agreed”, often on a take it or leave it basis, there are a few dos and don’ts which need to be observed.

 

When the subcontract is being drawn up for signing, make sure the agreed time slot is stated clearly in the subcontract.

 

For goodness sake do not sign up to a subcontract which states that the subcontractor is “...obliged to carry out the work at such times, and in the order the contractor shall from time to time direct.”

 

If the subcontract states that “...the subcontractor must carry out the work in accordance with the contractor’s programme”, make sure there is a programme reference number stated in the subcontract and you have actually seen the programme.

 

Programmes are regularly changed and if care isn’t taken, your time obligation becomes a movable feast.  That could prove to be very costly for you!

 

Roger Knowles

 

If you  have a problem then why not use the AskStreetwise or Streetwise Confidential  

feature on this site to ask our Virtual Team of experts for help?

Getting Paid Promptly

 

In times like these, the old saying that Cash is King has never been more apt.

 

Getting the job completed is always at the front end of the mind, but if survival is to be assured, then all need to “think money.” When the cash runs out, the curtain comes down.

 

Prices are under the cosh, but you should never lose sight of the fact that if a Contractor is offering you a contract, there must be a good reason. It is usually a combination of good quality work, ability to complete in the time scale and lowest price.

 

Before signing on the dotted line, having had the price beaten down, it is worth chancing your arm to improve the payment terms. Some Contractors are offering orders with 60 days and more payment terms, which compares badly with the normal 14 or 17 days provided in many standard contracts.

 

Contrary to what many believe, a subcontractor’s negotiating position is at its best when his price has been accepted, and the Contractor is under time pressure to get the subcontract work started, but the deal not finally clinched. A threat to walk away from the project, unless the payment terms are improved, may be considered by many to be a high risk strategy, but often a job on lousy terms is worse than no job at all.

 

Roger Knowles

 

If you simply haven't got time to look for what you need or have a problem then why not use the Ask Streetwise or Streetwise Confidential  feature on this site to ask our Virtual Team of experts for help?

 

 

Should You Down Tools if Payment is not Forthcoming?

 

Securing payment is more difficult now than at any time in living memory. We are all familiar with the thousand and one excuses provided as to why the payment which was due hasn’t arrived.

 

The general feeling among subcontractors experiencing difficulties with payment is that they should down tools and walk off the site until payment has been made. Whilst this is a natural reaction, it is important to understand that whilst under the Construction Act there is an overriding entitlement to stop work if payment hasn’t been made on time, it comes with a set of rules which must be followed.

 

It is necessary for the subcontractor to serve a written warning notice on the contractor and if seven days have elapsed and payment still hasn’t arrived, the subcontractor is then entitled to suspend work.

 

Without the warning notice, the subcontractor who suspends work can find itself in the wrong and on the receiving end of a delay claim, despite the contractor’s failure to pay on time.

 

If the subcontractor’s work is on the critical path, the threat to suspend work often results in the arrival of the money.

 

Where a subcontractor correctly suspends work, there is an entitlement to an extension of time for completion. Some subcontract conditions also provide for subcontractors to receive payment for the loss and expense incurred as a result of the suspension.

 

Roger Knowles

 

 

 

Insolvency

 

When insolvency occurs, with the exception of the receiver or liquidator, everybody concerned with a project suffers financially.

 

Where a Contractor becomes insolvent, the subcontractor is often exposed with regard to materials stored on site for which no payment has been received.

 

It is often thought that materials delivered to site, but not paid for, belong to the Subcontractor, who can claim for their return or payment in full from whoever finishes off the work. This is only half the story!

 

There is an old English law which states that everything which is attached to the land belongs to the person who owns the land. Once materials have been fixed they fall into the category of being attached to the land and therefore belong to the Employer. In such cases the Subcontractor receives only the few pence in the pound, if indeed he ever gets paid out by the liquidator or receiver.

 

If the materials haven’t been fixed and have not been paid for, then in the absence of a clause in the contract which states otherwise, they still belong to the Subcontractor. The materials can be recovered by the Subcontractor or payment claimed in full from any person who uses them.

 

However, a major stumbling block is that contracts are often drafted to state that once materials are delivered and stored on site the ownership automatically tranfers to the contractor.

 

If the contract contains such a term and the Contractor becomes insolvent before the materials stored on site have been paid for, the Subcontractor will have no claim on them. All the Subcontractor will receive is a few pence in the pound!

 

Unfair as this type of clause may be, it is legally binding.

 

It may therefore be worth you checking the proposed subcontract conditions and in the event of there being a clause which transfers ownership to the Contractor once the materials have been delivered to site, try and get it changed.

 

If you have already started the works or signed up to the contract you should ensure that only an absolute minimum amount of materials are stored on site at any time. 

  

Roger Knowles 

 

If you simply haven't got time to look for what you need or have a problem then why not use the Ask Streetwise or Streetwise Confidential  feature on this site to ask our Virtual Team of experts for help?

 

 

 

 

 

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