Jacob Austin (00:00:17) - Hi all, Jacob Austin here from QS.Zone. And welcome to episode 44 of The Subcontractors Blueprint, the show where subcontractors will learn how to ensure profitability, improve cash flow and grow their business. In today's episode, I want to discuss some of the contractual language that gets used frequently. One of the complaints that I sometimes get is that the words get used and they aren't necessarily clear, and some of those words get twisted into something significant and something different to what you might expect. So if you're listening to this as a subcontractor, I want you to be able to pick up your subcontract and understand what the interpretation of these few obligations are so that you can read it, digest it, and understand what it means for you. So that's what we're talking about today. If you're new to the show, please do subscribe for more user friendly advice on all things subcontracting. So let's start with the Common Express obligation introduced by the word shall. That word appears in a vast amount of clauses throughout the subcontract. One example of that would be two point 17.1, which is for notice by subcontractor of a delay to the progress, and that says if and whenever it becomes reasonably apparent that the commencement, progress or completion of the subcontract works or such works in a section is being or is likely to be delayed, the subcontractor shall forthwith give notice to the contractor of the material circumstances, including, insofar as the subcontractor is able, the cause or causes of the delay, and shall identify in the notice any event which in his opinion is irrelevant.
Jacob Austin (00:02:00) - Subcontract event. So if you listen carefully, you would have noticed the word shall cropping up twice there. The subcontractor shall forthwith give notice and shall identify in the notice anything he thinks is a subcontract event. And what this is doing is identifying something that you absolutely must do. So it's not a may notify the contractor. And what this is obligating you to do in this instance is as soon as you become aware that there is going to be a delay caused, whether that's to the commencement, the progress or the completion of your work, you have to give a notice to your contractor. And if you can, you should describe the causes of the event, and then you must tell the contractor which of the relevant subcontract events this falls under. So note the implication of the word. You shall do this. It's not that you may, and it's not that you should. Either of those terms might imply that there's an option here to do that, but don't worry, if you don't do it, then they'll still be a way around.
Jacob Austin (00:03:03) - But now when you have that shall. This is a direct instruction, an obligation for you to do something. And the ramifications then, if you don't, is that you potentially lose an entitlement. So by not submitting a notice, you aren't giving the contractor a heads up and the opportunity to do anything about any potential delay. So then you forego your potential entitlement now to also the use of the word forthwith, implying as soon as you find out you've got to crack on and do it, it's not as soon as possible or as soon as is reasonable. We're talking right. That's going to cause a problem. I'd better send a notice. Not. We'll just see if in two weeks time this is causing a problem and then send you notice it's immediate. And the implication of that is that if the contractor had the opportunity to do something different a couple of weeks ago, but you've known there was a potential problem and then didn't do anything about it, and that is then caused him to miss that opportunity to change and do something different and prevent the issue.
Jacob Austin (00:04:06) - Then the implication is that you would again lose that entitlement to extra time, essentially because you failed to act when you knew there was a problem. So the contract is there trying to encourage you and pushing you to do things proactively if you are keen eared. When I read out that clause, you would have picked up the phrase reasonably apparent and that should mean. And that points to the reasonable man test. Would a reasonable man have picked up that a delay was going to be caused by whatever event? And the phrase reasonable also crops up fairly often when it comes to obligations, you're quite often see the phrase the subcontractor will use reasonable endeavours to ensure that X or Y happens. Now, this is one of the softer endeavour obligations that you'll see drafted into a contract, and it basically means that if you're acting fairly, you would have a properly good go at achieving whatever it is you need to achieve to do that X or y. And because the word reasonable implies that it is a fair outcome or a fair situation, then it's a sort of a moderate amount of effort that you have to apply.
Jacob Austin (00:05:14) - That isn't to say that you can just. Try once and that's it. But it implies that without disadvantaging yourself and acting within your means, you're going to try and get something done. Now contrast that to best endeavours. So endeavour as we just mentioned, is you have in a really serious try at achieving something. But when you couple that with the word best, what you're actually saying is I'm going to do my absolute utmost to make sure I get this done. And then the clue is in the words, because it's asking for your absolute best to leave no stone unturned. It doesn't say your second best endeavours. You have to take all steps within your power to produce the desired outcome. And that means even if you're going to lose money by doing something, if that's the only way that you can get that outcome, then you've got to do it. And it is implied by some people that you've almost got to do anything short of bankrupting yourself to make sure that you get that outcome. There is a bit of case law that outlines a situation where best Endeavours was argued about, and that was in 2012 between Jet2 and Blackpool Airport, and Blackpool Airport had identified that it was losing money by having Jet2 planes landing outside of their core hours, which were 7 a.m. to 9 p.m., and Blackpool Airport were arguing that they were losing money, and it was highly inefficient for them to operate outside of the normal hours.
Jacob Austin (00:06:42) - So they sought to bring an end to allowing Jet2 to operate like flights. So four years into a 15 year fixed contract, Blackpool Airport tried to bring in a requirement for Jet2 to land its planes during regular working hours. And Jet2 argued against that, saying that Blackpool Airport had signed up to using their best endeavours to help jet to operate as a low cost airline, and that by withdrawing this late hours availability, they were going to harm their business and cause them to have to put up ticket prices, and that Blackpool Airport wasn't using their best endeavours to support that low cost price objective. And when this got argued about in the court, the court decided that Blackpool Airport had been allowing these out-of-hours flights for the period of four years up until now, and that they should carry on doing that. Whether that meant that they were operating at a loss or not. Now, had that been watered down to a reasonable endeavours, there theoretically would have been a balancing act to carry out between the commercial viability of operating out of hours versus the need to provide a cheap service to a low budget airline.
Jacob Austin (00:07:55) - And in my opinion, the outcome then would have been the other way. But why is this important to you as a subcontractor? Well, if you read on in the standard JCT design and build subcontract the old favourite clause 2.18 .6.1 contains exactly that best endeavours phrase, and it says the subcontractor shall constantly use his best endeavours to prevent delay in the progress of the subcontract works, or as such works in any section, however, caused and to prevent their completion being delayed or further delayed beyond the relevant period for completion. So right there in the black and white of the standard unamended JCT is a requirement for you to leave no stone unturned to prevent the delay of subcontract works. If you find yourself in a period of delay. So you've got to do everything within your power, everything possible to avoid the situation getting any worse. More recently, there's been the use of the phrase all reasonable endeavours, which is cropped up in contract drafting. And this is one that probably because it hasn't been tested thoroughly as a bit of a difference of opinion over.
Jacob Austin (00:09:05) - Reportedly, some courts have decided that it's probably a middle ground, suggesting somewhere in between reasonable endeavours and best endeavours. But then on the flip side to that, a different case suggested that the use of reasonable endeavours means that you would take one well-thought through course of action, but you try really hard to make it work, and beyond that you don't have to do anything else. Whereas by saying all reasonable endeavours, that suggests that you've got to find all different routes of delivering whatever outcome you need to and apply your reasonable effort to each one of them. So this points back to that sort of phrase of leaving no stone unturned whilst you're looking for the right solution. I've also seen some suggestion that rather than using one of these endeavour clauses reasonable endeavours, best endeavours, that they get modified to say something along the lines of commercially reasonable endeavours to sort of suggest that you should do what you can, and you should try as hard as you can, as long as it makes financial sense, and that's fine. But we're then getting to a point where this is all just a bit of wordplay and.
Jacob Austin (00:10:15) - The phrase commercially reasonable endeavours. I can't see that it crops up anywhere in current case law to say what that actually means, or what the court would say it means, and actually a reasonable endeavours obligation already suggests that commercial factors involved would be considered. So if you come across one of these clauses that requires you to apply your best endeavours or even your reasonable endeavours, rather than try and water that down without knowing where you're going with it. What the best thing might actually be to do, in my opinion, would be to have a discussion about what it actually means and to talk about a scenario and what the contractor thinks that you should actually do. And if they start to suggest that you've basically got to bankrupt yourself to avoid delay, then clearly that is something you're not going to sign up to. And I would suggest if they don't want to water that down, then that's not really somebody that you want to do business with. But some questions that you might want to ask to help you establish some sort of ground rules on the situation once you've tried a particular route and it's not working, what level of time, cost and resource will I expect to deploy? And is there a monetary cap that we can put on that? And if you want to challenge the best endeavours obligation, how would you go about doing it if you had to demonstrate that you are deploying your best endeavours, how do you go about demonstrating it? You are expected to report regularly on the situation, and explain why what you're doing is a reasonable way to approach it, and then what happens if the other party doesn't agree with that and they think that you should be doing more and how these questions get answered, we'll tell you a lot about how the contractor is going to act should these clauses come into force.
Jacob Austin (00:12:01) - And finally then another thought on absolute obligations, which are often found in employer's requirements when it relates to design liability. Now, I did a detailed episode on design liability, which episode number 24. And in that episode I discussed fitness for purpose and why it's important to always ensure that your design obligations are always limited to reasonable skill and care. And this is because the fitness for purpose test acts as a sort of guarantee that you will achieve the outcome that the part of the building that you're designing will perform as intended, even if that intention isn't patently clear within within the scope or the employer's requirements. And critically, this is such a big issue that your pay insurance in this country just wouldn't cover you if you enter into a contract that has got that obligation. So a word of warning there that wherever you see fit for purpose, you need to strike that out and replace it with design with reasonable skill and care. And if you want to know the full backstory on that, do check out episode 24 on Design Liability, where I talk about it in detail.
Jacob Austin (00:13:09) - So I'm going to wrap up there for today. Keep it short and sweet, but hopefully useful to everybody. My mission with this podcast is to help the million SME contractors out there working in our industry. If you've taken some value away from today's episode, I'd love if you share the show and pass on that value to somebody else who would benefit from hearing it. And of course, subscribe yourself if you haven't already. And thanks for tuning in to today's show. If you like what you've heard and you want to learn more, please do find us at QS.Zone where you can subscribe to our training and support system for like minded subcontractors. In there you'll find templates, how to videos, interviews, and more. It's less than the price of a daily cup of coffee and you can cancel any time. We're also on all your favourite socials at @QS.Zone. Thanks again! I've been Jacob Austin and you've been awesome.
