Streetwise Guide to Onerous Conditions
As a Specialist Contractor you need to ensure that you steer clear of as many onerous terms and conditions as you can.
Onerous terms usually occur in the Client or Contractor’s own “non-standard” documents but can also arise as amendments or “addenda” to Standard Form contracts.
Such terms and conditions are not just going to make your life difficult they may cost you a substantial amount of money
And in the worst case scenario they may cost you your business!
Plenty of financial pain and suffering can be caused by onerous terms and conditions.
Don’t let it happen to you!
Below is a list of the types of onerous clauses you should be looking out for and some useful hints and tips on how to avoid them.
- Extended payment periods
- Pay when certified
- Extended fixed price periods
- Non-payment for unfixed materials
- Excessive discount
- Excessive retentions and/or periods
- Onerous set-off clauses
- Acceleration without payment
- Vague programme information
- Design fitness for purpose
- Open ended co-ordination provisions
- Restricted rights of recovery on variations
- Protection of your works
- Client’s milestone dates for access
- Excessive liquidated damages
- Restricted extension of time entitlements
- Restricted loss and expense entitlements
- Notice periods made a condition precedent
- Adjudication entitlements restricted or delayed
- Costs of adjudication to be paid by the Sub-Contractor
- Construction Act abuse generally
Obviously the best time to find out about these onerous provisions is at the enquiry stage before you have submitted your price. You should always be clear about the terms and conditions you will be working under if you are successful.
If you don’t know or don’t have time to find out about terms and conditions you should always qualify your tender. For example you could qualify it by saying something to the effect of
“Our price is based on the Standard Form of Sub-Contract DOM/1 (or DOM/2 if you are designing the works, or any other Standard Form you are familiar with) and subject to agreement of all necessary details to enable Articles of Agreement to be completed”
or
“Our offer is subject to the agreement of appropriate terms and conditions and we have not priced the risk of entering into any onerous or non-standard form of agreement”
If your tender is successful then you will be invited to enter into a contract or possibly sent an Order or Contract to sign. You need to act quickly and carefully. Don’t think that you can start work, even design work or ordering materials, and just because you haven’t signed the contract everything will be alright. It won’t!
DEALING WITH ONEROUS CONDITIONS
The first line of defence lies is recognising onerous terms and conditions in the first place. Whilst you may be tempted to ignore the small print, you may subsequently find that a contract has come into force incorporating onerous terms which have fatal consequences for your business.
The contract conditions should be carefully checked, particularly if they are contained in a completely non-standard form. Beware too of ‘look-alike’ documents printed on the same colour paper and in the same type as standard forms but which are actually entirely ‘home-made’ forms.
Clause wordings can be checked against the equivalent condition in the standard forms. Remember to look for clauses that are not there, as well as checking the ones that are. For instance, if you are designing the works and the contract is silent about design liability, then you will have a very onerous “fitness for purpose” obligation. This is much worse than it sounds because you are literally guaranteeing your design will satisfy the Employer’s needs irrespective of what you knew or didn’t know about his business or industry.
Having identified any onerous clauses do not let them slip into the contract by mistake.
In order not to be caught by onerous provision you must make it perfectly clear that you are rejecting their onerous terms. Notice I said rejecting their terms, not rejecting their order.
When negotiating about onerous and non-standard conditions, the following points may be useful to you:
1. In general, the Standard Forms allocate risk to those who are best able to quantify and control them. Arbitrary changes to this balance of risk can have serious consequences. On the face of it, a one sided contract may seem attractive to the Contractor but when the industry is buoyant, many responsible Sub-Contractors will simply refuse to tender or will qualify their tenders so heavily that comparison becomes extremely difficult.
2. Even if other Sub-Contractors have tendered without qualification, they may have put a price on the amendments. In that case, it is likely that they will be making a guess at their liability, and this will artificially inflate their bid.
3. If other Sub-Contractors have chosen not to price the risk, and the contract goes badly they may be pushed into insolvency by the Contractor’s actions. This is a very common occurrence when money is tight.
There will be times when you have to take a commercial decision to accept onerous terms and conditions of contract. In this situation you need to be very clear about the risks you are running and manage them accordingly.
If you need help – please use the Ask Streetwise feature , call us on 01773 715062 or email us: info@streetwisesubbie.com
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