Jacob Austin 00:00:17 Hi all, Jacob Austin here of QS.Zone. And welcome to episode 57 of The Subcontractors Blueprint, the show where subcontractors will learn how to ensure profitability, improve cash flow and grow their business. Today's episode, number 57 is going to be about change orders or variations. And if you're new to the show, please do subscribe for more user friendly advice on all things subcontracting. So this episode is prompted by some curious contract terms that I've been working with recently, and this particular project is on a JCT 2016 design and build contract. So it's fairly common terms and conditions, but this amendment makes the conditions rather strange when it comes to addressing changes. And it prompted me to think, how many of you would have read the small print when it comes to the changes in your subcontracts, so that you understood exactly what the methodology is that you need to follow to get your hands on a change or on additional money and additional time. So I'm not going to go into masses of detail because of the sake of anonymity.
Jacob Austin 00:01:27 But we've got an educated client who's delivered a lot of construction work up and down the country in their particular niche, and what they've got is a really honed and refined process for setting on board their contractors and their design teams. And part of that appointment process includes their detailed set of requirements and a rather detailed set of contract amendments. And the amendment that we're going to talk about now was the topic of a lot of debate, because it feels like it's quite an onerous condition to comply with, certainly on the behalf of the contractor and for the client, it is quite open ended. So it's very much tipping the scales in the direction of the client and requiring the contractor to be on their toes at all times, and also requiring them to quite proactively submit notices to the client in a fashion that some clients would consider to be overly contractual. And I won't read it word for word because it's dull lawyer speak. But it basically says that if the contractor wants any more money or any more time to do with anything whatsoever, and that could be a change.
Jacob Austin 00:02:29 It could be anything that they think is delayed them and so on. So any more money or any more time that is termed a claim under this contract, and in order for there to be a valid claim, the contractor has to submit a notice to their client within 30 days of them becoming aware of the claim, or from the point that a reasonable contractor should have become aware of that claim, and within that period, you have to send your notice to the client identifying that they've encountered an issue, and it's potentially going to cause either the time or the cost to go up. And this is where I think this is particularly onerous, is because if the client decides to instruct a change, then they know full well that they're asking for something extra or they're asking for something different. But what they're saying is, regardless of whether it's an instruction, you have to send a notice of claim in order to get your hands on any extra money. And that's quite literally the case, because the consequences of not submitting that claim or submitting the notice are that you then forgo any entitlement to that extra time or money.
Jacob Austin 00:03:35 So this client could instruct an extra wing of their building. And if the contractor doesn't respond within 30 days with a written notice, then they lose all entitlement to the effect of that change. Now that just feels bonkers to me. If the client is able to issue an instruction, they should almost be putting themselves on. Notice that this potential further cost and delay coming. They shouldn't need the contractor to write them a letter to tell them something they already know. And then, to make matters worse, within 30 days of sending that notice, the contractor then has to provide a full estimate along with any program analysis and particulars that will support their submission and basically present a full claim. And that, to me, feels like another potential stumbling block, because how many times within 30 days have you got all of that information? How many times do you know what the full effects of that delay are going to be? Tis a tough one because sometimes there are delaying events that whilst you know they're going to cause a delay, you don't know how long that piece of string is until you get to the other end of it.
Jacob Austin 00:04:39 But then again, if you're working on an NEC project, then you've got something similar in the form of the compensation event clauses, because that does require you to have that full time and cost Implications nailed down within the compensation event period. But unlike this situation, you could notify something as an early warning that you basically know is going to happen, but you don't know what is going to do to the job yet, and then raise the compensation event later. And anyway, all of this made me think, I wonder how many of you out there have fully read and digested the change clauses in your subcontract, and understood what you have to do to get your hands on the extra money that you might be entitled to, or you might deserve for the work that you're completing. And I can talk about the standard clauses in a JCT or in any contract for as long as you like, but it wouldn't actually help you in this instance, because I can't read your contract for you. It's down to you to do that and to understand what you need to do to get a change over the line.
Jacob Austin 00:05:38 So let's talk some pointers on what to look out for in your contract. Who is allowed to instruct you? Is it anybody on behalf of the contractor? Or are there certain people with delegated authority that are able to issue you a site instruction. Now that should be important to you, because if you get instructed by somebody else and you are expecting to be paid for it, then you might come in for a nasty surprise when some time later the contractor says actually, that's not a valid instruction. Also, what are you entitled to claim for? Are there any caveats that restrict whether you can claim for prelims as part of a change, or whether your main contractor's discount should apply to a change as well? Are there certain events that have been struck out of your contract so that you're not allowed to recover costs against them if they transpire? Is there a certain procedure that you need to follow to get your changes ratified, and is there a timescale that goes alongside that that says, similar to the example that I've given earlier, you've got 30 days to submit your intent and then 30 days to put your bill in for that same piece of work.
Jacob Austin 00:06:41 If there continues to be a dispute about whether a change is valid or not. What are the escalation methods? Is there this something set out in your contract that says if you can't agree at site level, then so-and-so director will intervene and you must write to them to have a first round of negotiation before you take the dispute any further. So as I said, I can't read these terms of yours for you, but these are just off the top of my head. Some ideas of the kind of things you need to be looking for, to be able to react to any changes, and to be able to get your hands on the money that you deserve for any extra work you complete. Once you've established the process, you've then got the change procedure itself to go through and we're talking gathering the right information. So collating what was the original intent of the design versus what is now the design that you were instructed to carry out? Obviously, contrasting the two gives part of the story of the change. But as with any kind of change, the biggest component is down to the timing.
Jacob Austin 00:07:40 If you can move two lines on a drawing, it doesn't often cost you much, but as soon as that two lines means somebody breaking open something that is already finished. Then the cost can be a hell of a lot more and they can escalate really quickly. So part of the collection of the information needs to be about assessing the progress at the point that the instruction is given, taking records of what that progress is, so that then when you get to building up the cost one, you've got a record of where to start. But two, you can demonstrate to your contractor and they might be able to do the same with your records up to the client to say, hold on, you instructed this. I've had to take down half a wall to get this in now. And here's the photos and the records to demonstrate it. Collating the evidence first does away with a lot of the arguments. They say a picture paints a thousand words. And if you think about that in how many thousands of pounds you'd have to pay a lawyer to write a thousand words, a picture is worth a small fortune.
Jacob Austin 00:08:38 So get snap happy. It's great evidence and great value for money evidence too. Next we're into what is the actual impact of the change? Is it just a straight swap in terms of a scope item? Green door for blue door? Nobody really cares. Or is it something that's going to cause a significant issue? Maybe lightweight, block changing to really heavy, dense white block and all of the extra time and cost it'll take to load out and install that, and perhaps just to manhandle the things around. What is the impact? How is it going to change the longer term scope of the contract for you, as well as just the pure cost difference of substituting the piece of work? Is it going to continually cause you to lose time as you keep going? So is it a disrupting change as well as just a change? Then what is it going to cost? I've done a few episodes now on costing changes as a subcontractor, so I won't go into a lot of detail here, but I will just point out that there is the defined cost or direct cost in actually completing the piece of work, and then you need to have that sort of bit of blue sky thinking to cover off the other bits of costs that might come out of that change.
Jacob Austin 00:09:48 And that's your risk items, your prelim items, your attendant labor and supervision, bits of contingency about uncertain factors. These can be just as likely to happen during a change as it can during the life of a project. Obviously, the scale of the change might be smaller, so then the risk isn't necessarily as large. But say if there's a change that's opening up a completely new area of the site that you haven't got the same level of site investigation information for, then you're just opening up yourself to a whole load more risk on whether you're going to find soft spots and all the usual goodies that there could be hiding underground. Don't be afraid to negotiate some of this so you can negotiate, perhaps to reduce your price, but also to reduce your risk alongside it. So you might be able to reduce some of your risk allowances, but at the same time, pass that respect to the contractor and say that if this risk transpires, then you'll have to pay me more money for it. But being open to compromising on these factors to get to a fair outcome for everybody.
Jacob Austin 00:10:53 And of course I mentioned earlier, but having a good handle on the timing, any deadlines that you need to adhere to one in notifying that there is a change overall. But in two or so the deadline for submitting your costs or your program impact, or perhaps even both, those may be two separate deadlines. They might all be wrapped up into one, but either way, you need to be aware of what it is, and all of that is going to come from you reading your subcontract. And maybe 1 or 2 of you could write in with some contracting nasties that you've seen in one of your subcontracts, and we can debate what that's all about, and perhaps get a bit more insight in how best to deal with it. Do feel free to leave me some feedback on any of your favourite socials at @QS.Zone. My mission with this podcast 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 that value on to somebody else who'd benefit from hearing it.
Jacob Austin 00:11:52 And of course, subscribe yourself if you haven't already. And thanks for tuning in. If you like what you've heard and you 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. Thanks again! I've been Jacob Austin and you've been awesome.
