Jacob Austin 00:00:17 Hi all Jacob Austin here from QS.Zone. And welcome to episode 63 of The Subcontractors Blueprint, the show where subcontractors will learn how to ensure profitability, improve cash flow and grow their business. Today's episode is all about completion, one of the most important milestones in any subcontract. If you're new to the show, please subscribe for more user friendly advice on all things subcontracting. All right, let's dive in. As a specialist subcontractor, you'll often find yourself dealing with completion issues, whether it's related to finishing the work on time or navigating the murky waters of practical completion with the main contractor. This is critical because completion impacts when you get paid, how much you get paid, and whether you'll face any penalties like liquidated damages. One thing that I'm sure we can all agree on is that money and time are two of the biggest causes of disputes in construction, and when we're talking about completion, we're really talking about both of these issues at once. If you don't hit your contractual completion date or if you can't claim an extension of time for delays beyond your control, you could be on the hook for some serious costs.
Jacob Austin 00:01:33 And these costs aren't just limited to the liquidated damages the main contractor has to pay to the employer. You can also be facing claims from the main contractor for their own costs, and possibly even claims from other subcontractors who suffered delays as a result of your work not being completed on time. Now, this brings us to a critical question. What exactly does completion mean in the context of your subcontract? Well, depending on the type of subcontract, completion can mean a few things. Some subcontractors talk about practical completion, while others might reference final completion or substantial completion. The definition of completion is important because it directly impacts your obligations and of course, your ability to meet them, which then may trigger your liability for liquidated damages. In the construction world, practical completion is often the key milestone, marking the point where the work is complete enough for the employer to use the facility for its intended purpose. However, there may be some minor tasks, some bits of tweaking, snagging and suchlike still to be finished, but these items shouldn't impact the beneficial use of the building and practical completion therefore shouldn't be confused with final completion, which happens when all the snagging items are done and the project is fully signed off.
Jacob Austin 00:03:00 Now, let's face it, delays in construction are fairly common occurrences. They can be caused by any number of factors, but one of the biggest culprits is poor planning and programming. How many times have you worked for a contractor who just couldn't organize the site properly? Unfortunately, when that happens, it's sometimes the subcontractors who can bear the brunt of the consequences. Delays in construction can, of course occur for a variety of reasons. This might be poor coordination between subcontractors and the main contractor. Unforeseen site conditions like poor soil quality, soft spots, or maybe existing utilities that weren't documented or weren't visible to survey techniques. Delays in receiving materials either due to supplier issues or errors in the ordering process. Changes in the project design after construction has begun. And of course, the good old British favourite. Unpredictable weather conditions that caused delay on site and then this may fall again under the poor coordination item. But there is also the issue of poor communication when changes or issues aren't communicated in a timely manner. The knock on effect can result in delays for multiple subcontractors down the line.
Jacob Austin 00:04:21 So how do you avoid falling into this trap? Well, it all starts with effective planning, and this can be as early as when you're tendering for the work. You need to look closely at the proposed methods of working, and how much time has been allocated to your tasks. Make sure you understand the following key pieces of time related information. Dates of possession and completion for the main contract works the sequence of the works themselves. The dates that you can start your subcontract works the time needed for drawing approvals. If you're designing anything. Any key interfaces that you might have with other trades, and of course the durations of your planned pieces of work. Now, these details aren't always set out clearly in the tender documents, so don't be afraid to ask questions before you commit. One of the best ways to protect yourself from delays is by making sure that you've included the proper planning for your work, and you fed that back into the contractor at an early stage to make sure that their program and your program are both realistic.
Jacob Austin 00:05:28 And this is particularly key if you get the opportunity to be involved in the pre-contract stage, which is more and more common under the likes of frameworks that a lot of contractors are being appointed under these days. And if you can contribute your expertise early on, you can highlight potential bottlenecks or issues that could cause delay and help the contractor to come up with solutions before they become a problem on site. And it's always a case of the more that you can get right before you get to site, the better. So even if you aren't involved at pre-contract stage, certainly when you get to having a pre start meeting with your contractor, this is the best time for you to discuss the program, how things need to unfold, when any other feed in trades need to complete their pieces of work, and trying to iron out some of those niggles that occur between key trades that interface with each other. Now let's talk about a common issue with subcontracting, which is an undefined start date. How many times have you seen a sub contract that says either to be agreed, or gives a window when the subcontract works are going to start? This can be a risky way for you to proceed.
Jacob Austin 00:06:38 If there's no agreed start date or a clear window for when your works can begin. And by clear I mean quite a narrow window. How are you supposed to claim for an extension of time if delays happen. Worse still, some contractors try and impose a really large commencement window, sometimes as long as several months, during which time you could be expected to start on a relatively short notice. This can make it impossible for you to plan your labor, plant and materials and any other resources necessary effectively. And to give an example on that. I want to worked with a subcontractor who was working for another contractor at the time, on a job where they signed up to a subcontract with a six month commencement window. And what happened next? Well, the subcontractor was called in at relatively short notice by the contractor just one week and demanded that they mobilize their team and turn up with materials to start the work. And unfortunately, the subcontractor just wasn't ready. And this led to a domino effect of ongoing delays for not just the main contractor, but the following on trades.
Jacob Austin 00:07:48 And not only did the subcontractor lose money, but they were also held liable for the delays to not just the main contract, but some of the other affected trades. So my advice is to never enter into a subcontract that either doesn't have a firm date or at the very least, a realistic window for commencement. If it's a few weeks, maybe a month, that might be manageable. But several months is asking for trouble, especially when you think you might have to source 20, 30, 40 men at fairly short notice and get them working on site productively. It's asking for trouble. And so whilst you might be able to work with the contractor around a window to commence, if they are going to stipulate a window, you need to be clear about what you can achieve with a given notice period. So if they give you two weeks, is it reasonable for you to have 20 blokes on the hook in your back office that you can just lift off and plunk on the site, or is a sensible approach if they're going to give you a short notice period for you to mobilize with a couple of gangs at the start and ramp up to full production over the period of a month or so.
Jacob Austin 00:08:57 These are the kind of details that you need to be discussing at your pre start meeting, so that you're not left holding the baby. Now let's talk programs. So under most standard forms of contract you're obliged to complete your works within the time frame set out in your contract. And that time frame isn't necessarily the same as what's on the contractors program. And often the contractor will run two programs so that they've got a contract program that they're delivering against to their client, and sometimes a target program where they're trying to finish the project early. And having sat in the contractor's chair on multiple occasions, there is quite a lot of internal wrangle as to whether the dates from the main contract program or the target program end up going into the subcontract. Because on the one hand, if they don't encumber you with achieving the dates in their target program, then what chance have they got of achieving it? But on the other hand, that program tends to be stripped out from a float point of view so that there's minimal buffers in the case of anything going wrong.
Jacob Austin 00:10:01 And what that can do is expose the contractor to delay costs from various subcontractors if their work then gets delayed because there wasn't that float built in. So for the contractor, this poses a tricky balancing act. And what sometimes happens is rather than determining a particular date, the contractor's program can go into the subcontract and they'll stipulate to work alongside other trades to meet the contractors program. But be careful if this happens to you, because sometimes the program can be revised without the mechanism for you to get an extension of time, because, as we know, the contractor or program the work for their best intent, and then as and when certain delays might happen throughout the course of a job, they'll revise that program and ask you to work to it. And that can find you adapting to new schedules at fairly short notice, and potentially without additional payment for the time and effort involved. So it's important for you to remember that your contractual obligation is to complete the works within the contractually agreed time frame, not the contractor's ever shifting program.
Jacob Austin 00:11:12 And if the program changes during the project and those changes affect your ability to complete your work, you then have the right to claim for an extension of time and potentially compensation for that delay. And that is something that you need to consider. If you get handed a revised program, the first step for you needs to be to review the changes carefully to see how they impact your tasks, to see where the new deadlines given are realistic, and that you can achieve them with your current workload and your current level of resource. If you have any identified areas of concern after that review, it's time to communicate with the main contractor and put that communication into writing. It may well be that they're providing you with a program that effectively instructs you to accelerate, but remember that acceleration may come at extra cost and that you should always ask for an instruction to accelerate. So let's talk about acceleration. Let's say a project has fallen behind schedule due to factors beyond your control. And now the contractor wants you to speed up your work to catch up.
Jacob Austin 00:12:21 Now, unless there's a contractual mechanism for the contractor to instruct acceleration, they've actually got no right to force you to speed up without your agreement, and certainly not without paying you for the extra effort you're going to take. So a lot of contracts will include acceleration clauses. And that gives the contractor the right to instruct you to speed up, but only given certain conditions. And if you are going to accelerate it, it's important that you ensure that you have the resources to accelerate safely and without compromising your quality, because at the end of the day, your reputation will be built on the quality of the lasting job that you leave behind, and any instruction for you to hurry up will be long forgotten. If there's a list of defects, as long as the Chelseas squad list for you to mop up later, and always remember to get a separate agreement before agreeing your acceleration of your subcontract work. Standard subcontracts don't usually cover the valuation of acceleration, so try and get this agreed in writing with a sensible mechanism for you to get paid for any overtime or any additional premiums that you have to pay for out-of-hours working.
Jacob Austin 00:13:33 So what does that look like if it goes wrong? So I once instructed acceleration with a subcontractor who was really, really against carrying it out on my particular job. And when I dug into why that was, it transpired that they'd been instructed to accelerate on a previous project, which had been delayed by another subcontractor prior to them starting. And the contractor was basically trying to do the right thing to get the project back on track. So the contractor pushed them to bring in extra resources and cause them to incur a load of extra cost for working overtime and working out of normal hours. But unfortunately, they didn't draft up any kind of agreement formalizing how that would be paid. And the contractor argued with them that the costs they were tabling weren't reasonable, and eventually, whilst they agreed to compromise on it, the subcontractor ended up absorbing a significant amount of the acceleration costs and basically took them from making profit on the job to making a small loss. And this underpins why it's so important to get things in writing before the acceleration starts, because otherwise you're not obligated to carry out that acceleration, and you're potentially leaving yourself with an argument over what you get reimbursed for.
Jacob Austin 00:14:52 So if you want to know more about acceleration, I actually did a full episode on that exact topic, which was episode 12, so I'd encourage you to go back and give that a listen and hopefully it will see you. Right. Now let's move on to the all important milestone of practical completion. Reaching practical completion signifies a number of key turning points in the contract, including the release of retention monies and the end of your liability for looking after your works on site. It also triggers the start of the defects liability period. But interestingly, as I mentioned before on the show. Despite the importance of this key phrase, there is no clear definition as to what practical completion actually means. And in my previous episode on practical completion, I was actually suggesting that a sensible way around this would be for it to be defined on a job by job basis, so that there was a clear marker of what practical completion meant in the precise terms relevant to the contract. But oftentimes we're left with this woolly definition, which is inevitably led to numerous court cases where then a third party has tried to interpret exactly what it means, but generally it refers to the point at which the works are substantially enough complete that the employer can use the job for its intended purposes, even if there are some minor bits of defects or snagging to be completed.
Jacob Austin 00:16:22 And as I mentioned, your liability at this point decreases significantly and you can typically start applying for the first release of your retention money. In many cases, your attention will be released in two stages. The first upon that practical completion and the second after the defects liability period, which is also known as the defect rectification period. One crucial step that subcontractors often overlook is getting a notice issued. And by that I mean a written notice declaring that practical completion has been reached. Often the contractor will overlook doing that, and therefore to cover yourself your best off issuing that notice yourself and doing it as soon as you believe you've achieved your practical completion. If the main contractor doesn't dispute your notice within the specific timeframe, which is usually 14 days, then your work is considered practically complete. But of course, the contractor can disagree with that. And if that's the case, then you'll need to negotiate or perhaps rely on the main contract completion date to determine the completion of your works. But in many years of working for a main contractor, I don't think I've ever received a practical completion notice from a subcontractor.
Jacob Austin 00:17:42 And you think this would be important enough given that your attention release is attached to that, that I would get more of them. And certainly because you can use this as the start of your defect liability period to then measure when you become due your second portion of retention and what's known as the making good of defects or final completion. And this is when all outstanding defects and snagging items have had been addressed and the project is formally signed off. The defect liability period is a specified time period, and it's normally either 12 or 24 months after practical completion has occurred, during which time the contractor and their subcontractors Contractors must return to site to fix any defects or issues that arise in their work. Be sure to stay proactive within that period and respond to any issues that the main contractor or employer identifies to you. Because failure to address these defects promptly can lead to retention monies being either withheld or withdrawn altogether via claims for breach of contract. While it is easy to relax at this point and assume it's all over, final completion and the making good of defects is your ultimate goal.
Jacob Austin 00:18:54 That's the point in the job that your obligations are fully fulfilled, and your financial liability for the project is now closed. So it's important to be alert and respond to defect notices during that period to avoid any unnecessary complications in getting your hands on that final piece of retention. Now, hopefully that's helped. 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 on that value to somebody else who'd benefit from hearing it. 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 your cup of coffee per day and you can cancel any time. Also, check us out on all of your favourite socials at @QS.Zone.
Jacob Austin 00:20:01 I'd love to hear your thoughts on today's episode. Thanks again! I've been Jacob Austin and you've been awesome!
