Jacob Austin** ((((00:00:17)))) - - Hi all. Jacob Austin here, owner of QS.zone. And welcome to episode 52 of the Subcontractors Blueprint. That's 52 episodes, one for every card in the deck. No jokers, and one for every week of the year. It feels like we're getting somewhere. Stick with us to learn how to ensure profitability, improve cash flow, and grow your business. Today's episode, I'm going to cover the ten most common causes of disputes for subcontractors, counting down the top ten of dispute disasters and hopefully giving you a few tips on how to avoid those disputes hitting you. And just before we dig in, if you're new to the show, please do subscribe for more user friendly advice on all things subcontracting. Now we're going to start with number ten, which is warranty claims or claims for defective work. And clearly these will arise if there is some kind of belief on the part of the main contractor that your work has been substandard, or even if it stems from a substandard design. And thankfully, this rolls in at number ten, presumably because when something is defective, it's usually quite clear as to what the issue is, who's caused it, and whether you should be paid for it or not.
Speaker Austin** ((((00:01:29)))) - - But these are disputes arising from those situations where you've been called back to site. There's a problem and you think it's somebody else. The main contractor thinks it's you, and you end up in a gunfight. And quite often in those situations, the main contractor will put you on notice. And if you don't rectify the defect, they'll then charge you for putting that defect right? With somebody else carrying out the piece of work, which is likely going to cost you an inordinate amount of money more than if you put it right yourself. So it is worth considering what the alternative is before you flat refuse to attend to a defect, because that is likely going to mean a claim from the main contractor. And whether you think it was your defect or not, they're going to finger you for recovering all of that cost. And perhaps the most sensible route that you can follow in this kind of situation is to request an instruction to open up the works, because let's say there's a roof leak or there's some ponding on a roof.
Speaker Austin** ((((00:02:26)))) - - And in fact, that reminds me of a situation that I got called to once where we got a small area of flat roof and the roofing contractor refused to come back to the piece of work where the roof was ponding, and it was actually a couple of inches under water. So clearly there was an issue and the water wasn't draining away down to the gutter which sat at the side of the roof. And they were alleging that the joiner hadn't built in the tilting fillets on top of the roof. Joyce. That created the fall to take the water to the gutter. And the joiner was saying, absolutely no chance. I've definitely 100% put those on. And cut a long story short, the roofer refused to attend to the defect. We employed somebody else to clear it up, and then we recharge that to the roofer because we'd satisfied ourselves that the tilting fillets were indeed there, and that the defect could have only been built in by the roofing man. Now this cost him more money. It cost more management time to get that resolved.
Speaker Austin** ((((00:03:24)))) - - And he left the situation not feeling very happy. Whereas what he could have done was request that instruction to open up the works. And that would have protected him. Because if the problem had been found to be the joiners work, then he could have recovered the cost being paid for that opening up, plus the cost of reinstating it. But if it had been found to be his own issue, then it just would have been his defect, which rightly, it was just to go back and put right, and he would have done that in the most cost effective way possible. And when you get to a disputed variation, that is what I think is the most sensible way to deal with it, because you're protected, you'll have that conversation with the contractor to say, look, I don't think this is me. I'll help you by all means to get this right. But if when I get in there, I can demonstrate to you that this wasn't my issue to start with, then I wasn't paying to put right whatever I've taken out.
Speaker Austin** ((((00:04:17)))) - - And a reasonable contractor will totally appreciate that. That's a sensible way forward. And then you've got an instruction to recover your costs against if you find that it wasn't your fault. Now, of course, if there's a major, major issue and we're talking tens, hundreds of thousands of pounds worth, then you may not want to stomach going back and putting that right, but you've got to flip it around the other way and say, look, if the contractor brings somebody else in, who is likely going to be more expensive because they don't know the systems or they don't know the design, they don't know how it was built, and they're going to try and make some money out of the situation themselves. Then it's going to cost you a damn sight more than if you just bite the bullet and get there and put the thing right on a cost basis, instead of how much somebody is going to value that piece of work at. And that is an important distinction. When somebody else gets involved, they want to be paid for what they do.
Speaker Austin** ((((00:05:11)))) - - So you might be paying cost plus 20, 30%, which if we're talking of a defect worth £100,000, you've just lost yourself an extra 30 grand versus the pure cost that it would be to you. Now, the other thing to say about quality is it's fully within your hands whilst you're doing the work. So having your robust system of quality control checks and sign off points is the best way that you can avoid defects altogether. And you want to consider with this, what is the work like when I'm accepting it is the substrate that I've got to apply to correct? Is it defect free before I start? Because once you start putting your work over the top of somebody else's, then you're building in and contributing to a defect and making it a bigger problem than it is. If you say, no, hold on, this is no good. And going back to our roof situation, the roofing contractor could have came to our site foreman if they had found that the tilting fillets weren't there or the falls weren't correct and said, look, I can't roof onto this because it's going to cause you a problem long term so your roof isn't ready.
Speaker Austin** ((((00:06:15)))) - - I'm going to go away and tell me when it's been rectified. That would have cost the contractor nothing, because he would have said to his joiner, put that shit right, and the joiner would be obligated to do that. So I'm highlighting this because it's not only sensible to have a quality control system which controls your own work, but also one that controls the takeover point at which you start doing your work. And some contractors are really good at this. Take the flooring man who knows that if there are ridges in the floor that it's going to show through his thin carpet, or if there is moisture in the floor, it's going to deboned his glue. So he does those checks and inspections up front to avoid there being an issue later. Now on to number nine on the list. And this one was a bit of a surprise to me. It's insurance coverage now. I wouldn't have thought this was a major cause of disputes. Certainly not ones that make their way all the way through to the court or into adjudication.
Speaker Austin** ((((00:07:07)))) - - But I have known several arguments being had over this in the past, and it usually relates down to somebody in the design team from the contractor not reading the quotations thoroughly enough and understanding the level of insurance that is being provided. And typically this is where there's some design involved, and it often is only an issue if there is some kind of warranty to be provided upstream to the client. And in the main contract, there will likely be a stipulation of all the collateral warranties provided must have a minimum level of Pi of X, and if you're providing x minus one, then it's a problem. Now oftentimes the client will wave this away and say okay, it's reasonable that certain disciplines don't provide the same level of pi, but sometimes they will have an insistence that what the contractor has signed up to in the main contract must be adhered to, and that is when the contractor gets in a sticky situation. But from your perspective, all you can really do is be clear about what you're going to do. If you haven't had the opportunity to inspect the main contract, then you can't comment on it, albeit the contractor will provide you with that opportunity if you ask.
Speaker Austin** ((((00:08:16)))) - - So if you do get that opportunity and you've got a difference, then that is the time to flag it up as soon as you become aware. Alternatively, prior to signing your order, you want to check the requirements of your subcontract and make sure that they match what you can provide. And if you can't provide what's being asked for, then don't sign up to it. And you might be faced with a strange decision over whether to turn away some work or whether to have an argument with your contractor about it. But the prospect of turning away work when you can hopefully go and winter more is a lot better in my eyes than the prospect of facing a lengthy dispute about providing something that you haven't got. So on to number eight, which is inspections and testing. And this is about disagreements which occur over the interpretation of inspection results. And then who is responsible for correcting any issues that are raised. And this most likely will come down to what it says in the contractor's scope. Now, sometimes the contractor will put down all manner of things, basically everything that he can think of that's been an issue in the past and try to cover that off so that you're carrying the risk of that thing going wrong in the future.
Speaker Austin** ((((00:09:25)))) - - Now, sometimes those things can be quite reasonable. Sometimes they just can be completely unfathomable. Yet the contractor will insist that because you've signed up to an order that says this in the scope that this is your problem to deal with, because hopefully, if there's a testing regime set out in the contract and you've designed to suit those tests, or you designed to suit the performance level set out in the contract, then if a test comes up and it's falling short, you'll put your hands up and say that shortfall in performance is down to something I've done, and they'll put it right, because that would be the right thing to do. Unless, of course, there was something that was different about the building and it was that that was causing the difference in performance. So to give a bit of an example to that, if the building was supposed to achieve a certain temperature within so many minutes of the heating system turning on, but it wasn't getting up to it. But you could point to a quite clear difference in that there was some insulation missing, or the air loss from the building was too great, then.
Speaker Austin** ((((00:10:25)))) - - These are the kind of things that would change the test result, whereas if it didn't perform to the requirements and those problems didn't exist, then that issue must fall down to you to rectify. Now, I'm not going to dwell on the scope issue because that actually comes up later in our countdown. But my point on scope is, as always, to be really clear about what you're signing up to so that you're not accepting risks that you haven't priced and you're not being expected to do things that you never envisaged. But more on that later, because now we're on to number seven. We're starting to get into the meaty issues now because this one is termination of the subcontract. Now, either party can terminate a subcontract for various reasons, which are set out in your form of subcontract. But disputes can arise due to the validity of the termination, and then the amount of compensation that you would perceive is owed to you as a subcontractor, or perhaps the amount of compensation that the contractor believes they are owed as a result of the default that has led to that termination.
Speaker Austin** ((((00:11:26)))) - - Now, one of my mentors describes termination as the nuclear button. It's about the last thing that you want to do as a main contractor because of the number of pitfalls there are in terminating properly. And this is where the number of disputes come about, because the amount of times that a notice has been missed, the amount of times, even if the notices have been issued, that they're slightly out on timing, or perhaps picking up an incorrect breach of contract and saying that that is grounds to terminate any one of these things can render the termination invalid. But my point on this one is that if it's got to the point of termination, things have gone horribly wrong already, and you don't want to find yourself in that boat because the contractor won't terminate your subcontract lightly. This will likely be because of significant underperformance, major health and safety issues, or a combination of the two, and the termination notice will likely be the last in a long line of emails, correspondence and phone calls, giving you ample opportunity to put the thing right.
Speaker Austin** ((((00:12:31)))) - - And of course, I'm supposing in this situation that it's the subcontractor that's at fault, but equally it could be the contractor and most likely knowing contractors, it would be on the grounds of non-payment. Now, if you aren't paid in line with your subcontract terms, the threshold is actually quite high before termination becomes an option for you. So I would encourage you to read your subcontract terms really carefully before you start pressing the termination button. Because as I mentioned before, the opportunity to get this wrong is pretty high. So it's something that you should avoid if you can and consider alternative routes to recover your money. But if you absolutely must terminate your subcontract, then I would do that having fully read and understood the terms, and most likely leaving it in the hands of somebody really qualified to do so. So on to number six. This is differing site conditions. This is where a change in ground conditions is encountered. Or there's a significant change in how you're expected to complete the work. And the answer to this is a really simple point.
Speaker Austin** ((((00:13:36)))) - - Go and visit the site before you start pricing it, because there's no real excuse for not having a nose around and understanding what you need to do. So if you rock up on day one and you're expecting to unload some kit into a nice ground floor room, and you're now finding yourself with two labourers manhandling the thing up seven stories of stairs and through tight corridors, and you've not priced and understood that requirement, then something has gone wrong. And the easiest way to avoid that, as I say, is to get there yourself. Visit it, walk it out, pace out the route you're going to have to take. Talk to the contractor about the issues that's going to cause. See if there's a way that you can help the contractor to make it easier. Now, sitting in the contractors chair I have in the past with my project manager worked out a way of leaving some windows out and erecting a temporary loading bay to get something significant. Up to a third story. And we only found ourselves able to do that because we'd had enough warning from the subcontractor pricing it in advance, and we'd had that logistical chat about the practicalities of getting the job done.
Speaker Austin** ((((00:14:42)))) - - Now, the next point is to be really clear about what you've priced to do. So if you get to site and something is different to that, then you've got a clear line in the sand to point back to. Now, I would imagine that the biggest issues are found in the ground, so these are probably only relevant to our friends, the ground workers. And all I can really say to this is have a good, pragmatic discussion with the contractor about the risks that you're willing to take on, and some contractors will try their absolute damnedest for you to accept every single risk they can think of, whereas others will be willing to take a bit more pragmatic view. And as long as within your experience, you can price accordingly and price the level of risk that you think there will be on that site, then you may be willing to accept some of that risk. But on the flip side, when you're looking at a site investigation, it's only as good one as the person who put the scope together, and two, as the amount of money that the contractor has spent on it.
Speaker Austin** ((((00:15:38)))) - - And some contractors will like to go overboard on this and try and explore every little pocket that they can, whereas others will just take the view that the more money they spend on it, the more boreholes they get done. But there's always the chance that they haven't put the borehole in quite the right place and some unknowns will creep in. And therein is the risk. Because no matter how many areas you choose to investigate, there will always be areas that you haven't. And you can bet a pound to a pinch of shit that if there is some asbestos on site, that some friendly farmer is buried in a hole, that that their hole will be somewhere that the site investigation hasn't covered. So visit the site, take on board what you can from the document, but be clear about what you have and haven't priced. Now on to number five. And that is the old favorite the contra charge. Now contra charges will often stem from some kind of defective work. So that goes back to the quality control that we mentioned earlier.
Speaker Austin** ((((00:16:39)))) - - But it also goes to holding your hands up to problems that you've caused yourself and dealing with them at the right time. Now, I did a detailed episode on country charges, which actually recorded well over a year ago. It was episode number six, and I spoke about the mechanisms for recovering country charges, which actually sit outside most subcontracts. So if you're having a bit of a dispute about a contra charge, I would very much encourage you to go back and listen to episode six and recall the principles of getting it right first time, trying to take on board and own issues that you've caused, and perhaps look to settle them outside of the main contractors involvement. And that might mean a bit of a you scratch my back and scratch yours arrangement with another subcontractor on site, and of course, making sure that the contractor has followed a proper process for notifying you and giving you opportunity to put the work right before they start deducting money from you. So I'll move on to number four, which is delays. And of course, delays can be caused by a whole host of things on a construction site.
Speaker Austin** ((((00:17:48)))) - - There's inaction by the contractor or the client or the volume of instructions that you've received. There's whether there's unforeseen circumstances. There's you, the subcontractor performing slower than you have been obligated to, or indeed other subcontractors on the same site doing exactly the same, the service providers failing in their obligations. Again, there's material shortages, acts of God and war. Now, the general principles are that if there is somebody to blame for something, as in it's a direct action or inaction, then you can likely recover costs. And if it's outside of everybody's control, then you can likely only recover time. But you need to read your subcontract carefully on this, because quite a lot of the time the contractor will tamper and even the client will as well, with the clauses that entitle you to recover money and to recover time. And they may also change the timescales in which you have to notify these things. So get to know and understand what you need to do if there are delays. And be ready to write your notices.
Speaker Austin** ((((00:18:55)))) - - Now you should always see notices for what they are. They are there to give somebody notice and nothing more. They're not being overly contractual. They're just there to try and make people aware so that something can be done about a particular problem. But simply put, if you miss your time to issue a notice, then quite often you lose your entitlement. And always remember that if the shoe is on the other foot, the contractor will probably not hesitate in issuing one notice to you. And just remember that it's called contracting for a reason. Because contractors contract. And as a subcontractor, you have to live up to your name in that. Issuing notices at the right time is protecting you from being delayed yourself or being fingered for that delay. And if the delay is genuinely down to somebody else or the weather conditions or so on, then the contractor has got to acknowledge what you're saying and grant you an appropriate extension of time. It's hidden the terms and conditions of your agreement. Now, caveat that by saying so long as the contractor hasn't deleted those terms, and of course that relates to delays that are caused by other people, of course you've got the opportunity to create delays yourself.
Speaker Austin** ((((00:20:06)))) - - So you've got to take care to start what you need, to start when you need to start it, and of course, to finish it when you need to finish it. And that means committing the right resource, the right expertise and management time to get the job done in the time you've been given to do it. Now on to number three, which is changes. Disputes over changes arise for various reasons, starting with whether or not something is a change at all, and that comes back to your ability to price things and tender them in a way that is really clear as to what you've priced for. And then, of course, checking the order that you get sent to make sure that the drawings and specification match your quotation. We then have changes that can cause delays, and you need to be careful that you anticipate whether something is going to cause you a delay or not, particularly if you're working in the NEC suite of contracts, where you've got that one bite of the cherry to get both the time and the price right to cover your back.
Speaker Austin** ((((00:21:05)))) - - And then, of course, you have the valuation of changes, valuing changes I've spoken about before. And you can find some more detail on that in episode 18. But there are valuation rules set out in your subcontract, which will cover whether you need to measure more of a similar piece of work that you're already doing. If that piece of work is similar but different, whether you can apply a pro-rata to the original rate, if what you're doing is incidental and can only be valued on a time and cost basis, or if it's best, if it's a completely new item, to value it on the basis of a fair rate, and be prepared to provide substantiation of your fair rate if you get asked for it. This isn't just something that you can make up from thin air, because the contractor will have obligations to prove one to their client, but two to their business that they're getting value for money for what they're paying out. And moving on to number two, which is somewhat linked to number three, is the scope of work.
Speaker Austin** ((((00:22:01)))) - - The scope of work is a vital part of what I like to call the Holy Trinity of subcontracts. one. What am I doing to when and how long have I got to do it? And three when and how much am I getting paid for it? And what am I doing is arguably the most important. And getting rid of scope of work arguments is largely about communication and the timing of that communication. And this is linked to so many things that we've already discussed. So the site visit to establish the conditions, the discussion with the site manager and the SHS about how are you going to get the work done and whether there's anything that they're going to do to facilitate that work getting done. And that reminds me of an argument that I ended up having over one of the very first packages that I procured as a graduate QS, and I'd spent all the time in the world vetting the quotations that I got, negotiating the price down, making sure the specification was what was on the drawing. Not only that, but that the drawn specification matched the performance specification in the employer's requirements.
Speaker Austin** ((((00:23:05)))) - - I looked at containment routes, I looked at colors, and of course I looked at quantities. But what I failed to look at was access equipment. And I had managed to really thoroughly vetted quotation without having any idea of how the labor was going to get up there to install the products. And thankfully, the site manager with 10 to 15 minutes of discussion was able to come up with a sensible way of doing it, which didn't really cost us a lot of money. And in all the years since then, I've never, ever placed an order without thinking. Not just about finished scope of works, but of course about all of the attendances that will get that scope of work completed. And I'm saying this because the how is just as important as the what when it comes down to clarifying what you're doing. Now, if I'd have placed that order without having that logistical conversation and thankfully it was discussed at the pre start meeting, then that subcontractor would have rocked up to the site expecting to have some access equipment, and we would have been causing critical delay to a project, a multi-million pound project, which would have cost thousands of pounds in prelims, delayed other subcontractors work and potentially cost ourselves liquidated damages to boot.
Speaker Austin** ((((00:24:19)))) - - Now, the more opportunity that you have to talk about these things, the better. So it's on you to have the phone calls during the tender stage, to lay out your quotation so that it's clear what's included, what's excluded, And even if you don't end up having a mid tender phone call, then your quote should spell out quite clearly and give the contractor the clues as to what they should be doing alongside what you're doing. And by doing this, clearly you're not only protecting yourself from any issues, but you're also helping the contractor to negate a potential issue. And the next thing you need to do, of course, is check that when you receive your order that the things that you've quoted for are adequately reflected in the subcontract documents, certain unscrupulous contractors may well tuck in things that aren't quite correct. A later revision of a drawing to one that you've priced, or introducing a couple of scope items that you've never seen before. Some of these things might be done as a bit of skullduggery. Some of them get done by innocent mistake.
Speaker Austin** ((((00:25:18)))) - - But if you see something and it's not right, then point it out, because the time to discuss that problem is before you put pen to paper on that order. Because by signing it, you're signing to say that the full contents are correct. And by that time it's too late to do anything about it, and you're now obligated to deliver what's in your order. And finally, on to number one, the most common dispute for subcontractors in the construction industry is payment issues. Now, this probably stems from the fact of how easy it is to adjudicate over a non issued payment notice. And that probably bumps this up to number one by volume of disputes. But if you think about it, payment issues cover absolutely everything that we've already discussed because payment issues can arise because of scope of works changes, delays, charges for defects, different site conditions as well, of course, as just the timing of the payment itself. Going all the way back to episode number five. I first discussed payments with you guys then, and I gave you my thoughts on how best to deal with late payment and in my view, that is issuing a seven day notice as soon as you've realized that your payment is late.
Speaker Austin** ((((00:26:35)))) - - And what the seven day notice is, therefore, is to tell the contractor they've got seven days to sort out your late payment or you're pulling off site, and this will frighten the bejesus out of your contractor, because no contractors wants to be the architect of the project's downfall. And the moment you suspend works, the moment the program is in freefall. And that means that they would have caused a delay that they potentially can't recover from. And that, for me, is the quickest way. All right. It's perhaps not the friendliest, but it is the quickest way to get your hands on your money. Now, to improve the friendliness of that method, what you need to do is speak to your contractor as you're issuing that notice, to make it clear that this is just part of your procedure to make sure that you get the money that you're entitled to because you've suffered with long payment delays in the past, you've been treated badly by other main contractors, and you, as a small business, can't afford to be in the same situation and not know when your money's coming in again.
Speaker Austin** ((((00:27:37)))) - - And you can tell them that it's not personal. It's just you doing what you need to do to protect yourself and having this kind of conversation. Perhaps whilst you email the notice whilst you're on the phone, or to tell them before you put it in the post box. Doing that is the best way to smoothen out these things, and to make sure that they're received with the intent that you're sending it in. Because at the end of the day, all you're trying to do is to protect your business and make sure it's there to keep serving the industry another day, to keep putting the food on the table for all of the people that work for you, not to mention yourself. And this, along with probably all of the other issues that we've already mentioned, is best dealt with with good, honest and well-timed conversation. Talking about issues, talking about them at the right time, making sure that details are correct, saying no when things aren't correct. These are some of the best things that you can do to avoid issues turning into disputes altogether.
Speaker Austin** ((((00:28:36)))) - - And that wraps up the top ten of dispute disaster. Thanks for tuning in to today's show. My mission is to help the million SME contractors working out there in our industry. If you've taken some value away from today's episode, I'd love it if you'd 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 if you like what you've heard and want to learn more, please do find us at www, 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 cup of coffee per day, and you can cancel any time. We're also on all your favourite socials at @QS.Zone, so find me on there. Let me know what you thought of the episode. Thanks again! I've been Jacob Austin and you been awesome.
