Wise Up Wednesday – How Should Contracts Be Set Up And What To Watch Out For! Part 2
This second and final part of a recent ‘Wise up Wednesday’ explains some of the onerous terms I have come across in practice. Part one is here.
Onerous Amendments
Unfortunately, many Contractors are likely to amend the latest standard JCT forms, just as they did the old one, and I could probably fill a whole book with the onerous terms I have come across in practice.
Onerous terms usually occur in the Client’s or Contractor’s own “non-standard” documents but can also arise as amendments to Standard Form contracts. These terms are deliberately designed to reduce your entitlements and increase your obligations. They will certainly make your life more difficult, and they could end up costing you a substantial amount of money. In the worst case scenario they may even cost you your business!
The simplest way to put onerous terms into context is to ask yourself this question; ‘Why, when there are all manner of Standard Form contracts around such as JCT, NEC and MF/1, does anyone need to produce their own terms or modify what’s there?’ Trust me when I say: “It isn’t for your benefit!”
The streetwise subbie is advised to identify these changes at enquiry stage, or during the process of getting into contract, and seek to restore the standard terms. Here are a few examples of the provisions which are subject to onerous terms or amendments.
Obligations Regarding Time
A phrase frequently found in non-standard contracts is ‘time shall be of the essence’. That means that obligations regarding time are fundamental terms of the contract, and if they are breached by the Subcontractor the Contractor has the right not only to claim damages but also to treat the subcontract as being at an end.
You should also beware of general obligations requiring you to comply with the Contractor’s programme and all of his directions regarding the order of the work, etc. Such clauses mean that you will be at the beck and call of the Contractor and will find it almost impossible to claim for delay and disruption.
Design
Ensure you know exactly what your design obligations are. And exactly what design documents you are working to. A one-line amendment, giving precedence to the ‘Room Data Sheets’ cost one of my Clients £30,000!
Compliance with the Main Contract
If you don’t know what it says how on earth can you price the risk of complying with it? Don’t accept provisions which make you responsible for everything that’s in the Main Contract. The subcontract needs to accurately reflect what you have priced to do.
Documents and errors and discrepancies
A common amendment is to make you responsible for all errors and discrepancies in the documents, even those provided by the Contractor! They do this by requiring you to point out any errors or discrepancies, and then instructing you which requirement applies, but such instructions are to be carried out without any adjustment to the subcontract price, or the completion date.
Payment
The first common misconception relates to cash discount. It used to be the case that 2.5% cash discount was deductible only if the Main Contractor paid within the period required by the contract. It was an incentive to prompt payment, but unfortunately, the Contractor now wants to take discount irrespective of when he pays. If the Contractor wants a discount, make sure it is conditional on prompt payment.
The second and simplest amendment is simply to lengthen the payment periods. They will do this by increasing the period up to the Due Date and/or the period from the Due Date to the Final Date for Payment, or both!
This is combined with a very short period (usually 1 day) prior to the Final Date for payment to issue the Payless Notice. A very deadly combination.
Retention
Check the retention periods carefully or it might be years before you get your retention money back!
Set-Off
The Construction Act does not prohibit set off against payments, but a Pay Less Notice must be given detailing the amount to be paid and how it is calculated. Watch out for linking set off to other contracts and ‘anticipated’ or future costs.
Insurance, Protection and Damage
Contractors may attempt to reduce their insurance premiums by making the Subcontractor responsible for damage to the subcontract works. Even that caused by his own negligence.
Under a Standard Form the Subcontractor is protected by the Contractor’s policy if the damage is caused by one of the ‘Specified Perils’ which include fire, explosion, and water damage, even if the Specified Peril is caused by the Subcontractor’s negligence.
As your insurance policies will normally be worded to cater for the position under the standard forms, it is vital that such matters are picked up at the tender stage, or you could discover you are responsible but are uninsured.
Attendance
The provision of appropriate attendances by the Contractor is something which must never be assumed. Even under the standard forms of subcontract, it is vital that you have identified at tender stage items of special attendance you will need, who will be responsible for providing them, and that this is properly incorporated in the subcontract.
Under non-standard forms, items which are normally considered to be general attendance’s may not be provided, such as hoisting, storage space, electricity, water, messrooms, sanitary accommodation and welfare facilities.
Dispute Resolution
Provisions may be inserted to attempt to restrict your entitlement to seek a legal remedy to any dispute which cannot be resolved by negotiation.
Conclusion
Make sure you understand the contract and watch out for onerous amendments to the standard form or the Contractor’s own bespoke terms. Don’t just accept what’s put in front of you. Negotiate!
And if you’re not sure what that wording means, take professional advice by emailing us at info@streetwisesubbie.com or calling our helpline on 01773 712116.
I hope you enjoyed my Wise Up Wednesday email and that it gave you some food for thought.
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