Jacob Austin 00:00:00 Hi Al Jacob Austin here from QS.Zone. And welcome to episode 74 of the Subcontractors Blueprint, which is the first episode of 2025. And today on the show, where subcontractors will learn how to ensure profitability, improve cash flow and grow their business. We're doing a deep dive into the amount you can get paid under a JCT standard building contract, or as the contract itself calls it, the sums properly due under the contract. And as ever, if you're new to the show, please subscribe for more user friendly advice on all things subcontracting. So let's dive in and I realize some of you will probably already be groaning at the mere thought of sifting through contract documents. And trust me, I read plenty of them and I can empathize. And reading clauses on payment can feel about as fun as a trip to the dentist. But this is about the most important part of the subcontract. It concerns how much you're going to get paid when you finish the job. So still yourself for a bit of detail today and you'll be rewarded, and hopefully you'll be better equipped to protect your cash flow and avoid nasty surprises.
Jacob Austin 00:01:32 So we're focusing on the various iterations of the standard building contract with quantities without quantities and with approximate quantities. These all largely follow the same conditions, but it's the elements about payments that differ between the three. And we're essentially going to delve into how we get from your starting contract some that hopefully is the sum you've scribbled down on your final tender through to the final account, some in proper contractual fashion. So your JCT standard building contract is a lump sum contract, both the with quantities and without quantities versions. And essentially you, as the subcontractor, will have priced a scope of works based on a bill of quantities, or in the quantities version, which is typically prepared under the new rules of measurement or a specification or work schedule in the without quantities version, and then you provide either a price document for option A or a contract, some analysis or schedule of rates for option B, which would be the remeasurement option. And that's fine. That's what you've priced. That's what you'll get paid until about the second month.
Jacob Austin 00:02:48 The project when some unexpected site conditions, design tweaks, other hiccups and delays begin to surface, and from that point in, you're not heading towards the contract some of you tended, but if you follow the process properly, you'll be heading to an adjusted contract sum. And the contract acknowledges this by explicitly stating in article two that you will be paid the contract sum or such other sum as becomes payable, and translating that to English, the contract figure can change and it often does. Typical reasons for adjusting that contract. Some are expenditure of provisional sums or approximate quantities, perhaps that get firmed up once more information is available. Variations or changes to the work agreed. Cost savings or value improvement measures that you might have put forward. Acceleration quotations if you've been asked to speed things up once the price is agreed, fluctuations if that option is activated under the contract. and finally claims for loss and expense caused by certain unforeseen events which are set out in your sub contract. So let's talk about lump sum versus remeasurement.
Jacob Austin 00:04:05 Under the standard building contract with quantities and without quantities, you generally have a lump sum agreement. That means you tender a single price for the entire scope of work, which should represent an accurately measured scope of works to complete the job, and factoring in overheads, profit, and prelims. However, as I mentioned before, the ultimate amount you can receive will shift potentially dramatically if you encounter extra or omitted items. Changes in design or in the case of the with quantities version, potentially errors in the bill, which might lead to variations. And contrasting that with the approximate quantities contract that is a fully remeasured contract. The bills in this contract only provide approximate quantities for the work, and after you complete the relevant portions of the project, the actual quantities are measured and payment follows from an as built measurement. The final tally of quants at the relevant rate is then referred to as the ascertained final sum. It's a bit like placing a call off order for a thousand truckloads of a particular material, but you actually only pay for the number of loads that you actually call off.
Jacob Austin 00:05:25 And finally, use. And the remeasurement model can be a bit of a double edged sword. If the actual quantities are significantly higher, you might stand to gain more money assuming that you can justify the rates. But conversely, if the quantities come in under the estimate you'll pay might shrink. And if that shrinking is significant, you might then need to think about how much overhead you've recovered from the work that you priced versus the work that you've actually completed. So from a subcontractors perspective, having a good site record and keeping a watchful eye on your productivity is essential as well as a detailed remeasure of the finished job. There can be a tendency in conversation to jumble up provisional sums and approximate quantities, but the contract is really clear on the difference between the two. Approximate quantities are to cover items that can be described fairly accurately in the bills, but where the final quantity of work is uncertain, that might be an amount of plaster patching required in a refurbishment, or you might have an approximate quantity of 500m³ of excavation, and that might be based on a best guess from the site investigation.
Jacob Austin 00:06:45 But if the founding level is different to the assumption made, then you won't actually know the final quantity of excavation until you've actually finished excavating. And contrast that to a provisional sum, which you might consider as like a placeholder for pieces of work that aren't yet fully designed or fully finalized. That means you can't properly describe them or measure them at tentative stage, but you know that they're needed. So the sensible thing to do is to set a budget aside, which is essentially what your contractor has done by specifying that provisional sum and where you have a provisional sum, you should receive an instruction telling you what to do to execute that provisional sum work. And in contrast with an approximate quantity, you don't need an instruction for that. It's already in your scope and it's just an approximate measure. So you basically crack on with it and firm up the measure afterwards. Now, whilst we were talking of provisional sums, we've got a difference between defined provisional sums and undefined provisional sums. I never really understand why bother at all with the definition for defined provisional sums, because in order to satisfy that definition, there has got to be so much information that you can pretty much price the work anyway.
Jacob Austin 00:08:03 And by doing that, you're removing all of the risk and any confusion. So for defined provisional sums, the tender documentation must provide enough detail about the nature, location and the requirements of the item so that you, as the specialist subcontractor, comprise the program implications and the preliminaries associated with that piece of work. So you know what you're getting into, even if you haven't been able to pin down a final dimension for it. But if there is any one of those bits of detail missing, then it falls into a category of undefined work, and that's where there isn't enough detail for the work to be programmed in, and prelims to be priced accordingly. So there would be more guesswork if you're asked to put a price to it. So a lot of provision or some work. Whilst it might be described as defined within the bill of quantities that you receive, can often end up being an undefined provisional sum because of the lack of information. And when it gets to expanding and provision of some, you need an instruction from your contractor.
Jacob Austin 00:09:05 But remember also alongside the actual price for the work that you're doing, you may well be entitled to additional program and additional prelims, and you have to think about the conditions that you're doing the work under and whether it's going to disrupt any of your other activities or cause re sequencing of your other work. And that's why, for you as a subcontractor, it's essential to track potential claims and instructions for provisional sums, because they might be entitling you to additional time and additional cost arising from that instruction. And actually an instruction to expend an undefined provisional Professionalism can also entitle you to a relevant event, which gives an extension of time and a relevant matter that gives loss an expense if it disrupts your regular flow of work. Now let's move on to properly valuing your variations, in many instances as a subcontractor. When you're instructed to complete extra work, it is often of a similar kind of nature to the work that you're already completing on a site. And where this happens, the contract is really clear in that it asks you to use the rates from your bill of points as they are, so you'll essentially measure the change and apply your bill rates to it.
Jacob Austin 00:10:19 Then you have scenarios where there is some similarity between the work that you're doing, but perhaps the conditions are different, or maybe there's a significant change in the quantity. Now, in those scenarios, you are likely to be entitled to pro-rata your bill rates. And what I mean by that is your take your original rate. You'll break it down into the component parts of that rate, and you'll then adjust the component parts in line with how you perceive that change has changed your original rate. So let's say you've got a plaster boxing, and in your bill you've got a nice dimensioned description of something. And on the drawing that corresponded with a boxing around a steel that was at a relatively low level. But now let's say that there was a change which raised the ceiling height and exposed steels at a higher level. And you've now got to box in those steels. You might look at it and go, well, the same rate applies. It's the same sort of work. The dimensions are similar, but what we're actually going to do is show the build up to that rate and then adjust the elements that would have changed.
Jacob Austin 00:11:21 So we're now providing access to a high level. So we need to add that into the right. And we're also lifting materials up and carrying out the work in more of a piecemeal fashion by going up and down a scaffold and then moving it again before we can carry on. So the labour element of that is going to change. So as long as you can reason out why the rate would be different and put some credible calculation to demonstrate why it's costing more, then you should be entitled to adjust that rate and be paid more money for it. You then got the third scenario, where work is completely different to other work that you are doing. And all right, it's not so completely different that you as a subcontractor can't complete it. But perhaps there isn't a given bill rights that in any way corresponds with it. In this instance, what you would have to do is value that work at a fair rate and price, and you're effectively going to build up a new rate, which now reflects the work that you're going to carry out.
Jacob Austin 00:12:15 Now, if you are asked to do something of this nature, be prepared that you're going to be asked for some kind of substantiation for it. So if it involves sourcing a particular kind of material and you haven't got any of that material elsewhere within the project, then it's reasonable for the contractor to ask you to provide a supplier's quotation or a supplier's invoice to demonstrate how much that material is worth. Then you'll be assembling a price based on how long it's going to take to do, and any plant and equipment you might need to do it and be prepared for these to be challenged. If you're not giving any sensible science behind your quote, or you're not able to provide proper substantiation of new bits that you're buying in. Now, whilst we're talking variations, there is also the option for the contractor to ask you to price a variation and advance. Sometimes it's a case that the contractor wants a more certain cost outcome, or sometimes it's a case that the client wants to know how much something is going to cost and budget for it before they consider whether they can instruct it or not.
Jacob Austin 00:13:15 So they might ask you for these quotations from time to time and they not get instructed. Now, this is when you have to draw on your experience, because you need to propose a cost that includes not only the cost of the work, but any additional time, any additional management costs involved. Because if your quote is then accepted, it becomes binding and whether or not it costs you more money at a later date. You're essentially tied back to that quotation. So this is the time when you need to fully consider the work, the risks involved, and the time it's going to take, and make sure that you get all of your compensation for that work on the table. Bear in mind, though, that the contractor doesn't need to accept your quotation. They can instruct you to do the work whether or not you've quoted for it, and you've got to honor that instruction. So if you give them a silly, ridiculously high price, they can instruct you to do the work anyway without accepting your quotation, and then value the work based on your original contract rate, or indeed a fair price for that work.
Jacob Austin 00:14:17 So the word to the wise is to make sure that your quotations cover everything, and you can explain the logic behind them, but they're not so high that you're causing the contract to think that they're not getting good value for money, or that you're taking the Mickey out of the situation. Occasionally you'll get work that's instructed, and it's tricky to quantify or measure. Maybe it's a bit of an ad hoc repair, or there's an emergency fix that doesn't really line up with anything measurable. Now, in those scenarios, the contractor may instruct you to do some work on a day work basis. And if that's the case, then what you need to do is tell your contractor when you're going to carry out daily works. Allow them some opportunity to come and have a look at it so they can understand precisely what you're doing, and then present to them a day worksheet for them to approve the labor plant materials costs that you're expending to complete that work. Then you're going to charge these costs back based on either the actual cost plus markup of the materials and plant used, or an agreed date work rate for your man hours.
Jacob Austin 00:15:21 Or occasionally there's a slightly expanded schedule in your order that gives rates for different kinds of operatives with different kinds of machinery, and you're expected to apply those rates to determine the charge to your contractor. But what you must do is make sure that you're keeping adequate records of what you're doing. Sometimes that might mean taking photographs of the work so you can try and document and tell a story, but it absolutely will involve keeping a worksheet and presenting it within the timescale that the contract is asked for, in order for them to review it and sign it off so that it becomes valid for you to get paid against. This isn't one way you can procrastinate on it and then present it two weeks later, when the site managers perhaps forgotten exactly what was involved. It needs to be done at the time when the information is fresh in people's minds and the site manager is able to recall what you've done and sign it off with confidence. The next separate item that you can be reimbursed for under your subcontract is for loss and expense.
Jacob Austin 00:16:22 Now these are set out in your subcontract as specific items that you can claim for perhaps if you've been disrupted, or if you've been delayed, and you're unable to complete your work in the timely fashion that you would have priced for. I'm not going to break down all of the relevant events and relevant matters in this episode, because there is a lot of information to go through, and I actually did a previous episode on it, which was number 14. So if you're in a situation where you're being delayed, I'd encourage you to go back to that and give it to listen, to understand the kind of scenarios where you might be entitled to extra time or extra cost. But the principle behind the loss and expense is that the contractor must be doing something that is delaying or disrupting your progress, and it needs to be an item where the contractor is specifically at fault. And when I say the contractor, it may well be that clients or other subcontractors on the site are doing the same thing and triggering one of those relevant matters.
Jacob Austin 00:17:20 But the key thing here is to follow what the contract tells you to do. If you are being delayed or disrupted, you have to notify the contractor promptly. This is a warning to tell them, look, something's going wrong and you need to do something about it. Otherwise it's going to cost you more money. Without that notice, you're not affording them that opportunity and you're more than likely to have your claim dismissed. So notify promptly and be clear about what the issues are. The next thing you need to do is to provide a proper assessment of the losses incurred, and this means often waiting until after the event has finished, or perhaps a period of time where a reasonable amount of the disruption has become apparent, and presenting your actual cost to demonstrate what your losses are. And there has to be a clear link between the event and the cost incurred. Now, the kind of things you might be charging for in this instance might be your on site prelims, your overheads or potential resources, manpower and plant costs and the like.
Jacob Austin 00:18:23 For if you're being disrupted and you're being caused to work inefficiently in a way that's costing you more money. So if the job is dragging on, causing you to cost more labor to do the same activity that you would have done quicker earlier on or without the event, then you've potentially got a claim. But be prepared that you're going to have to prove that you've submitted a notice that you've tried to prevent the costs from being incurred, or mitigate those costs, that there's a genuine link between the event that's happened and the costs that you are now presenting, and what those costs are on an actual cost basis. And the principle behind the contract in this is that it would try and put you back in the position that you would have been in if the delay or the disruption hadn't occurred, but you shouldn't be any better off as a result of that. And the final way to actually charge more money is via fluctuations. Now, these are something that are often either struck out or not selected as an option because in recent times, disregarding the last year or so, price certainty has been fairly constant, and inflation, when it's been managed well, it's typically a predictable couple of percent, and you're expected to be able to build that into your rates if you know the program duration of a contract.
Jacob Austin 00:19:37 So I'm not going to dwell too much on fluctuations because they quite often aren't an applicable route. But if you know that the option has been triggered within your subcontract, then the provisions of the contract should be applied. Now they are quite long winded and laborious, and they may well require adjusting on a month by month basis or a quarter by quarter basis, depending on what's been specified in your subcontract. So what I will say is, if you are under a subcontract with fluctuation provisions, make sure that you read and understand the calculation and that you apply it in a timely fashion in a way that your contractor can clearly understand what you're doing. Now, let's face it, the subcontract itself has a wealth of detail, and there can be a couple of stumbling blocks that you might fall over. So here's a couple of pitfalls and what you can do to sidestep them. Provisional sums A sensible approach to provisional sums is to ask for instructions for them, when you can see that they're on the horizon. This prompts the contractor because you do need to be instructed to expend a provisional sum, but make sure that when you are instructed, you can document that there is not just the work cost, but the potential prelims and potential other disruption involved with doing that work.
Jacob Austin 00:20:53 Often that is overlooked. Under-resourcing variation quotations. Now, quite often you'll be all keen to get a price. Agreed. Get it locked in and you think that mitigates your risk. But quite often when you're instructed to do something, a better situation is to wait until the work is finished properly, understand what was involved and what happened, and then put your price together afterwards with the facts surrounding that event. This can do away with your risk on pricing unknowns and on pricing associated delays. The biggest one has got to be notifications. If you don't submit notifications to your contractor at a time when you can see an event is happening or is about to happen, and allow them some opportunity to do something about it, then you are potentially foregoing your entitlement to additional cost, and notices are often seen as something contractual and something that subcontractors don't like to do. But think of it as you're trying to prevent a situation from occurring. If you can submit a notice to a contractor and say, hey, I can see this is about to happen, we need to do something about it.
Jacob Austin 00:22:03 Otherwise it's going to cost us both more money. You're potentially affording them the opportunity to do away with that cost altogether by changing their approach. And in an ideal world, they do that and you're both happy. You don't incur any loss. They don't have to pay you any more money. So with the notice, it's all about the delivery, how you word it and the timing that you're doing it with, and finally failing to keep adequate records. If you're in a delay situation, you need to be able to back up and prove what you're saying. That might be day works. So you've got sign day worksheets. These prove I was on site. They prove what materials I was using, and they proved what plant I use to complete that work. Those records are worth money, and they're always something that at a later date, you would wish you had more of if you had the benefit of hindsight. So all I can say is collate as many records as you can, because you can never go back and get them later.
Jacob Austin 00:22:58 And now I know I said that was the final item. But one further final thought is that a collaborative approach is the best way when it comes to construction. We're all usually trying to build something in challenging situations, perhaps challenging weather, and we can all feel like we're up against it. And this is where a collaborative, open communication can really make all the difference, helping each other to plan what's coming up, complete the work on time, and get out of there with a respectable margin. Now, in the construction industry, it can feel a little bit us in them, but basically the contractor is there to try and make some money whilst helping everybody else that they're employing to make money of their own. And that is the Holy Grail. And it's only by speaking to each other, planning things properly, making sure we're properly organized, that we can actually do that. And the subcontract entitlements that we've discussed today are a framework to underpin that collaboration rather than work against it. What I've discussed with you today should give you the building blocks to structure your payment applications properly, and handle the inevitable changes that happen on any construction job.
Jacob Austin 00:24:08 Certainly that falls under the JCT standard building subcontract, and hopefully you'll take something away from today's episode, my mission with the Subcontractors Blueprint is to help the million SME contractors working out there in our industry. So if you have some positives to take away from today's show, I'd love it if you'd share that knowledge with somebody else who would 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'll cost you less than a cup of coffee per day and you can cancel any time. We're also on all your favorite socials at @QS.zone. Thanks again! I've been Jacob Austin and you've been awesome!
