Jacob Austin 00:00:00 Hi all, Jacob Austin here and welcome to episode 147 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 the difficult commercial conversation. It builds on last week's episode of how to issue a notice without blowing up your relationship with the contractor, and this week we'll be looking at how to handle those difficult conversations, and we'll frame it around a scenario that everybody's been involved in, a slashed valuation and trying to defend the money that you feel that you're owed without setting off a nuclear bomb. So without further ado, let's dig in. Let's start with a hard fact. Your entitlement is only worth what you can actually get your hands on. You might be completely right on every count. The measure, the variations, the application of the contract. And if you can't have the conversation that turns that entitlement into cash. Being right isn't worth a lot. And for whatever reason, the vast majority of commercial disagreements never reach an adjudicator.
Jacob Austin 00:01:32 They get resolved in a conversation, which means that conversation is where the money is actually won or lost. Not in some form or process, but in either a phone call or a meeting. Often within days of the valuation landing, and that conversation is often handled really badly. Often in one of two ways. The first way is avoiding it altogether. The valuation is light. A big chunk of your variation account has been knocked out and rather than challenge it, you let it go. You don't want to rock the boat. You tell yourself, I'll pick it up next month or I'll pick it up at final account. But next month, and certainly by the final account stage, that cut valuation has become your baseline. The goodwill is gone. The money's gone. An avoidance for the sake of keeping the peace is now. What's paying for your variation work? Peace doesn't buy a lot of variation work. The second way that regularly happens is absolute detonation. The valuations come in light and off you go.
Jacob Austin 00:02:39 An angry email rights reserved. A thinly veiled threat of adjudication copied to everyone you can think of. Sometimes an outright blatant threat of adjudication. And what happens then? Or the other side digs in the SHS. You could have quietly had a word with and try and get some of that money reinstated. It is now entrenched, defending their position and probably digging more issues out to try and create a margin for error. And you're now turning a commercial problem into a dispute, and disputes cost you whether you win them or not. And so we need to think about a third way, a disciplined way. And that's what this episode is about. The first part to think about is always the contractual framework. This matters a lot because it's what separates a commercial conversation from just a moan about not being paid enough. So you never start the difficult conversation from nowhere. You have it from a documented and contractually right starting point. That's the whole game when you sit down over a slashed valuation. Your leverage isn't your personality or how reasonable you sound, or how long you've worked with the contractor, how many weekend shifts you've thrown in to keep the project moving forward.
Jacob Austin 00:03:58 Your leverage is the paperwork behind you. Instructions, records, measures, proper variation, buildups, and clauses that back off your entitlement. If you haven't got those. You're starting a conversation with a pair of twos in the hole, and you're trying to bluff your way to victory. But it doesn't cost you a lot to build a case that is worth two aces in the hole. Then you can use the same words, the same tone, and come to a completely different outcome. The first version is just a plea. The second version, backed with watertight contemporaneous records, is a proper negotiation, one that you'll actually make ground on. And that's what you need. You need those two tracks running in parallel. We talked about something similar in the episode last week about serving notices. The formal track is your contractual rights. The payment mechanism in your subcontract and the legal backdrop behind it, that track protects your position. Alongside it is the human track, the commercial management, the conversations that keep the relationship together.
Jacob Austin 00:05:06 They form how you actually resolve the thing without getting it escalated. The formal track is your fallback position. That's where you walk to. If the conversation fails critically, the contractor knows that's there. That's why records matter so much. There's a whole episode on contemporaneous records. Go back to it if you haven't, because this is where it pays off. Records aren't just for adjudication. They will give your conversation its teeth when you can put the instruction, your excavation records, tip tickets, concrete tickets all on the table, line by line by line. You're not arguing anymore. You're demonstrating and the person sitting across from you, They know exactly how the evidence would look if he ever went further. Now, I'm not going to go deep on the payment notice mechanics today. We've done that before. So today I'm just going to cover the principle around holding a contractual position and the conversation that converts that into money. Now it's easy to get caught out. We've already covered two big ways. Subcontractors lose money on this, saying nothing and letting the contractors cut stand or going nuclear and turning it into a dispute.
Jacob Austin 00:06:23 I won't go back over those, but what I want to focus on here is narrower the ways the conversation itself goes wrong. And even when you've done the right thing and picked up the phone. There are three regular ways that things can go awry. The first of those is being unprepared. You know what you're owed, but you can't prove it cleanly. You've got no instruction to point to, no records lined up, just a real sense that the valuation is wrong, and a sense that something's wrong is very easy to argue with. You get talked in circles, you can't substantiate specific lines, and you end up conceding ground that you shouldn't because you can't back it up in the moment. The second one is folding under pressure. This one's worse because you probably have the goods you've walked in with the position and the records, and then the contractors pushed back hard, maybe questioned you competence. Maybe they made it personal. And rather than hold the line, you started discounting your position to make the discomfort stop.
Jacob Austin 00:07:26 In this case, your evidence hasn't changed, but your nerve has. The third one is a real regular. It's having the conversation with the wrong person. The shows whose cut your valuation might not have the authority to reinstate it. Instruction flow down from on high. Sometimes you're more comfortable having a conversation with a contract manager with a project manager, but they've got no control over the number. Having a flawless conversation with somebody who can't say yes and move the money, move the needle is going to get you nowhere. So you need to find out who owns the decision and have that conversation with them. Let's make this concrete with a groundworks example. You've got a monthly valuation and it's gone in at 142 grand. Inside that is about 38 grand of variation value. This is for additional excavation because ground conditions weren't what they should have been. You've had to dig and cut off a soft spot. And then, because that soft spot coincided with a foundation, you've had to backfill it with stone and concrete, with additional reinforcement in line with a bespoke design.
Jacob Austin 00:08:42 The payment notice comes back in and it's 96 grand. The entire variation has been stripped out, not instructed, included in rates. Other comments. There's a couple of other niggles in there that you're not going to worry about. The big ticket item is your 38 grand's worth of variation, but good news is you've got records, a site instruction, and that confirms that you've found a soft spot and that the structural engineer is coming up with a bespoke design that you'll have to work to in due course. You've also got dig records, photographs, notes from a conversation with the structural engineer because your supervisor, one of your lads, help them figure out the magnitude of the problem when they visited site. You've got the revised design. So you think I'll show him and you fire back an email. We dispute your valuation. We want to be paid for this variation, and we don't mind going to the adjudicator to make it happen. And you've copied in the contractor's commercial manager and the project director as well. Now you get the predictable result.
Jacob Austin 00:09:48 The SHS who sent you that notice? Mark now has his boss watching. He doesn't want to reinstate the money. Even if you can convince him that it's the right thing to do. He doesn't want to look like he's got it wrong in front of his management, so he digs in. Now he get to a formal footing. The goodwill is gone. You start playing angry, email ping pong, and the money's further away than it was this morning. The better move is you. Phone. Mark. Mark, is Steve from the ground workers. I've had your payment notice through. I want you to talk it through with you directly before either puts anything in writing. There's a big gap. 46 grand. Nearly all of it is on the variations. And I think we've hit a snag on the records, really. So let me walk through what I've got so we can agree the principle and we can avoid firing emails back and forth. But Mark pushes back. There's no instruction for the extra dig, Steve.
Jacob Austin 00:10:45 So that's your risk as far as I'm concerned. But Steve holds the line without raising the temperature. I hear you, and if there were no instruction, I'd have to agree with you. But I have got an instruction from Pete. We've confirmed that we'll crack on with it in writing later the same day. I've then got tip tickets, dig records, materials, invoices, if it matters for the bits of rebar that we've had to buy. Let me send you the lot this afternoon, and I'll tear it all up line by line. So the picture is clear. All I'm asking is that you have a look at the evidence on that item and tell me where you land. If it's there, then I'd expect you to reinstate it. If you genuinely think it isn't. Then show me why and we can talk it through then. Look, I want this job finished and put to bed as much as you do. I'm not trying to create a problem, but I just need the accounts to reflect what's been done and instructed.
Jacob Austin 00:11:39 I'll give you a bit of time to go through the detail, but can we get a call on Thursday when you've had a chance to look through. Notice what Steve's done there. He hasn't mentioned adjudication. He doesn't need to. Mark knows what the records would look like. If it goes any further. So it's giving Mark a way to say yes without losing face. He's making it about records rather than. You've got this wrong. He's letting the evidence do the arguing so that the door stays open. The moment he's off the phone, he puts it in writing. Further to our conversation, here's the substantiation for the excavation, the change in foundation detail and the detail build up. I'll speak to you on Thursday to close it out. The conversation's resolved it. The email is recording it. So let's get into some substance. How do you actually run this conversation from the moment before you dial to the moment after you hang up? And that is the key. It starts before you say a word.
Jacob Austin 00:12:41 The strength of your conversation is the strength of your prep. You need to know your number, the contractual basis for it. Have the evidence lined up for every disputed line. And ideally, you want that in an order that you can walk through without fumbling around. In the back of your mind, you have your walk away. The formal route that you'll take. If it doesn't land, you're not going to mention that route, but you need to know it's there. That's what lets you stay calm. That's your fallback position. Someone who knows they've got a fallback position. Negotiates differently to somebody that doesn't. Next, it's picking up the phone. It's so well documented. Phone conversations, face to face meetings. Even team scores. There's so much more effective than email. Ping pong. Email hardens both of your positions. People defend what they've put in. Right in. There's black and white evidence of everything you say on an email that forms a paper trail that makes it difficult to climb down from a position.
Jacob Austin 00:13:45 It makes that climb down feel like losing. It also is completely void of tone. Things can be misunderstood, taken out of context. Read in a different way than you would convey it over the phone, whereas the call lets the other side move without an audience. You can write things down afterwards to record what was agreed by all means, but don't do it before. Doing it before starts a fight. The opening and your first few sentences. Set the temperature for everything that follows it. Don't start with a grievance. Try and open it in a way that frames the problem as a shared interest. So you're naming the gap neutrally. I want to talk through a couple of issues that have arisen. There's a gap on the account that I'd like to work through with you. Opening like that tells them that you're not the enemy is framing the problem as something that two of you are going to solve together, rather than calling them out and accusing them of getting something wrong when the pushback comes. Listen to it.
Jacob Austin 00:14:49 Don't argue. Arguing is just two people asserting different things at each other. What you want is to turn that into a joint examination of evidence. You might even agree with their principles, but then point to facts that you've got in hand already. You're right. If there's no instruction, that is at my risk. So let's examine whether there was one. Now, you've taken the fight out of it and turned it into that shared look for the paperwork. Use questions, not statements. The most powerful question you can ask is what they'd need to see to say yes. What would you need for me to get this reinstated? That flips the situation out of defending a no and into describing a route to yes. and more often than not, you'll already have exactly what they ask for. If it gets personal, if they start questioning your competence or start raising their voice, this is a key point not to match what they're doing. Your calmness, no matter how much biting of the tongue it takes, is exactly what you need to show here.
Jacob Austin 00:15:57 It shows the position of strength. It tells them that you don't need to shout. You've got evidence that's doing the work for you. If you matched it with heat, you're fueling the fire. That's how your valuation difference becomes a dispute. The best thing you could do would be to stay level and acknowledge that they're under pressure, and bring it back to the detail. I know you're in a tough place. I know you're getting squeezed on this job, too. Let's pack that and let's look at the three line items. Next, make a specific ask. Don't be vague. Vague complaints will get vague answers. Saying I'm not happy with the valuation isn't saying what you want. It's a grumble. Whereas I need the £38,000 of variation value reinstated. And here's the substantiation. It's harder to argue with. It's going to get you a decision. Once the ask is out there. Let the silence sit. Don't rush to fill it by softening your number. Silence is one of my favorite tours. The discomfort of a pause isn't a reason to start discounting against yourself.
Jacob Austin 00:17:04 That discomfort sits with the other side as well. Wait for them to fill it. I couldn't tell you the amount of information that I found out by sitting and listening. Another key thing is to keep the formal route in your back pocket. Don't put it on the table. Don't threaten adjudication because the fact that you're entitled to do it does the work for you. Threatening it breeds resentment, and it entrenches the other side. It makes them want to be right in their position. And then the conversation stops being commercial and it starts becoming a fight. That's the tool that you save when the conversations genuinely run out of road. And even then you raise it as a regret, not as a weapon. I really don't want to have to go through a formal process. Let's see if we can land in some common ground first. Closing the conversation always needs to include concrete next steps. Think of it like setting a Smart goal specific, measurable, attainable, relevant, and time bound. Now, if you've followed the points before, you've already achieved the first four letters.
Jacob Austin 00:18:14 So tie up your ask with a time bound agreement about when you're going to conclude things. So you'll look at the three items and come back to me by Thursday. Even if they then say Thursday is going to be tight because of X and Y, you're starting the conversation about when you're going to bring things to a definite close. Then once you're off the phone, you confirm that in writing what was discussed, what was agreed? When? Who is going to do what? To move it forward? The conversation has done the explaining. It's guided both of you towards where you can find a resolution. The email then records it and it protects you if memories then start to fail later on. Now when all of that is said, there will still be the odd occasion when the conversation just won't land and you'll know when that is. If you tried all of that sensible conversation and you're not getting anywhere, then don't keep talking past the point of usefulness. That's how deadlines slip. It's how final accounts drag out for year after year, and goodwill that you've tried to maintain gets burned anyway for nothing.
Jacob Austin 00:19:25 That is the point to cleanly escalate your dispute. But remember, it isn't personal. You're not doing this because you hate the other person, even if you do. You're doing this to follow a contractual process to get your hands on your money, so you have to avoid inflaming the situation. Avoid emotion. Be firm and protect every penny you wrote, but do it levelheaded, as if you still want to be the subcontractor that the contractor wants on their next job. That combination is the whole skill. Now, as ever, there's more to all of these things than I can fit into a 20 minute podcast episode, but the principles that I've highlighted today should stand you in good stead. The key points to remember your entitlement is only worth what you collect. The conversation is the collection mechanism for everything short of a formal dispute resolution process. Most commercial disagreements will be resolved in that conversation, not by an adjudication decision. Point number one is always to have that conversation from a documented position. That means records, instructions, clauses, photographs, invoices.
Jacob Austin 00:20:39 A conversation backed by those records is a strong place to negotiate. The first move on a tense issue needs to be a phone call or a face to face conversation, not an email. Emails are going to harden each other's position and making it easier and even forcing you into defending a written position. Open that conversation with shared interest, not a grievance. Then frame your big issue as a record gap, or a gap of understanding that you both need to work through, not an accusation of you've got this wrong, but frame it as something you want to collaborate over to get to the right answer. Then you make a specific, substantiated ask not of a complaint. Vague complaints get vague responses. A precise number. Tie that up with a time scale to resolve it and record it back in writing. Whilst you're recording that, that's the time that you can represent all the evidence that supports your position. Confirming that in writing gives you a clear marker to move forward, and it either means you get to a resolution by an agreed date, you get to another round of negotiation on that agreed date, or you set a marker in the sand when the conversation's failed and the formal route can take over before any deadlines come and bite you.
Jacob Austin 00:22:03 Always keep that formal route in your back pocket. You're not likely going to threaten adjudication with your set hairs running on the other side, but you know you've got that as your escape route, your fallback whilst your entitlement does the heavy lifting for you. And in a nutshell, that's a sensible framework to handling that difficult conversation that is all too common and all too often handled badly. So I help that helps. My mission with this podcast is to help the million SME contractors working out there in our industry. And to do that, I need your help. If you've taken something useful from today's episode. Share it. Pass it on to somebody who would benefit from hearing it too. And thanks for tuning in. If you want to go deeper, then come join us at the Subcontractors Blueprint Academy. It's all at www.SubcontractorsBlueprint.UK, and we're also on all your favourite socials again at @SubcontractorsBlueprint. And remember miss the contract detail and the commercial risk falls on you. Thanks all. I've been Jacob Austin and you've been awesome.
