Wise Up Wednesday: It’s not just LAD’s that you will incur!
One of the biggest financial risks to you as a Specialist Contractor, Trade Contractor, or subcontractor is damages for delay.
The damages you will incur if you over-run your original completion date can be massive. And there is a lot of misconception about how these damages can be avoided.
Take this question from one of our Clients;
“We regularly do sub-contract work for [Main Contractor] under JCT subcontracts. The pre-order minutes that make up the order will often include a section where they list the Liquidated Damages they have in place with their Client under the ‘Main Contractor Information’ section. They do not however list this as being applicable under the ‘Sub-Contract Information’ section.
As part of our negotiations on a contract by contract basis – in an effort to protect ourselves where we can we get them to include a comment in the pre-order minutes AOB a statement such as “LADs – Where stipulated these will not apply to [Subcontractor]. Only fully substantiated direct costs associated with accepted delays will be considered.”
However some sites refuse to put this in and say that unless they have stipulated in the pre-order minutes that LADs are applicable to the sub-contractor in the ‘Sub-Contract Information’ section, they can’t deduct them anyway.
Is this the case? Or is it the case that they can apply them to us (should we be at fault) on the basis they have made us aware these exist in their main contract with their client?”
Whilst every situation is unique and must be dealt with on its merits, here are a few thoughts on the above question.
- Firstly, this particular Main Contractor gets you to sign the Pre-Order Minutes and by doing so you to enter into a binding (and onerous) contract without realising it. Please don’t sign anything if you don’t understand the consequences of signing.
- Unless the contract is expressly amended to exclude liability for liquidated damages then you are at risk of incurring them. The “note” referred to above is unlikely to have become a binding term of the contract.
- The idea (put forward by the Main Contractor),that unless you are told about LAD’s they don’t apply is quite simply wrong.
- The position under almost all Main Contracts using the JCT form is that there will be LAD’s in the contract between the Employer and the Main Contractor.
It’s Not Just LAD’s That You Will Incur!
If you delay the Main Contractor you will incur;
- Liquidated damages from the client of £”X” thousand per week, plus
- The cost of the Contractor’s site staff and establishment, plus
- The costs from any other sub-contractors that are delayed
You could be looking at £tens of £thousands per week of costs being deducted from your account and/or pursued from you through adjudication or litigation.
That’s enough to cause severe problems for most Specialist Contractors and enough to be terminal in some cases.
Don’t Prevaricate – Take Action
If you wait until disaster strikes before considering what you should do, then you are in big trouble. It’s probably too late by then in most amended subcontracts, and definitely those incorporating NEC/4 or NEC/3 as it was!
In JCT contracts what you must do is to give the Contractor written notice of individual delays immediately they become apparent, detailing the cause and the effect upon your programme.
In particular, you must notify the anticipated effect upon your completion date and request an extension of time. Then you must update these notices as the works proceed.
You must also keep and regularly submit good site records (i.e. site diary, progress reports etc.) in order to prove your entitlements when challenged. And, you must submit these details in writing and as soon as you encounter the problem.
Please also ensure that you comply with the specific requirements of the contract, which can be onerous. If it says you must send such notices on blue paper in a green envelope tied up with pink ribbon, then that is what you must do to ensure the notice is valid!
If you have the notices records and evidence in place, then even if the Contractor comes at you, it should be possible to win in the end.
Don’t Go It Alone
If things are going wrong there is a tendency amongst Specialist contractors to think that they should know what to do, that it’s all their fault and that they should try and muddle through on their own.
Worse still the Main Contractor may even encourage you to do nothing or not to send notices!
All this is BS! Dealing with delay is time consuming and stressful. And it isn’t easy.
So, if you are in a situation where you want to exclude your liability for damages from the outset, or things are not going according to plan, then our advice is please seek our professional advice.
Initial advice is free and our team are really friendly and approachable, so please give us a call on 01773 712116 or email us on firstname.lastname@example.org.
I hope you found this week’s WUW of benefit, and please don’t hesitate to get in touch.
P.S. Please remember that we are here to provide solutions exclusively for Specialist Contractors, Trade Contractors and Subcontractors. If you want access to professional solutions that work, then please give us a call on 01773 712116, or email email@example.com today.
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