Jacob Austin 00:00:00 Hi all, it's Jacob Austin here and welcome to episode 148 of The Subcontractors Blueprint, the show where subcontractors learn how to ensure profitability, improve cash flow and grow their business. Today's episode is kicking off a mini series on disputes. So over the next few weeks, we're going deep and we'll be covering crystallisation. The thing hardly anybody talks about but that sunk more adjudications than anything else. We'll also cover smash and grab versus true value and how you actually enforce a decision when the other side just ignores it. But today we are episode one of this series, and we're starting where any good series should at the beginning. So today is the map. Before you go down any one road, you need to see all of them. You need to see what your options are. Understand what each one of them is going to cost you in pounds in time, and make a decision which way to go. So today is about making that decision. So let's dig in. Let's say you rode 40 grand. The work's done, it's signed off, and the payments have just stopped.
Jacob Austin 00:01:33 Your emails are now getting one word answers. If they're getting answers at all. And right now, you're probably doing the one thing that guarantees you never see your money. Nothing. So what should you actually do? At this point, people go one of two ways. They freeze. They tell themselves, is not worth the hassle. They write it off. They swallow it, or they go the other way. The polar opposite way. They get angry. They ring a solicitor. They start a war that they haven't sought through and they can't really afford. Both of those answers are usually the wrong move, because in between freezing and going to war as a range of options. Doors that you can walk through. And almost nobody in this industry lays them out plainly for subcontractors to understand. So that's the job of today. But before we mention those doors, there's one thing I think you should get straight. A dispute is not a failure. I think a lot of subcontractors carry that idea around that if it comes to a dispute, something's gone wrong.
Jacob Austin 00:02:42 They've let it get it out of hand. They're being difficult, but that's rubbish. A dispute is just the system doing what it was built to do. The contracts, the law doing what it should do. Two parties don't agree on the money. Two parties don't always agree on the money. but the mechanisms are there to sort that out. Using them can be as normal as seeking somebody else's opinion. Here's the thing, though. The real risk isn't the dispute. The real risk is standing still. Every week you sit with an unpaid account, your position gets weaker, the records go cold. The people who are there on the job stop. They go on. They move on a different site. They forget the details. Maybe they go and work at a different firm. And also the other side learns something about you. They learn that you huff and puff when you don't get your way, and then you do nothing, which makes the next time it happens easier for them. So doing nothing isn't the safe option.
Jacob Austin 00:03:49 It might feel like it because it's quiet, but how many times can you afford to take that option before it's just not worthwhile anymore? So let's start with some doors. Which one will he take? Door number one. Which is the cheapest one in the building is the conversation. This is you picking up the phone, getting in the room and trying to sort it out commercially, person to person. That probably sounds too simple, but a huge number of disputes do get settled that way. And they finally settle that way because somebody finally has a straight conversation instead of trading defensive emails. Either way, for 3 or 4, five months and more, there's a tool that goes with that door and you should know the name of it without prejudice. When you mark a conversation or a letter without prejudice, you're making it a protected settlement discussion. It means you can put an offer on the table. You can say, look, I reckon I'm old 50, but without prejudice. I'll take 40 to draw a line under it and move on.
Jacob Austin 00:04:58 That offer can't be waved around in front of a judge or adjudicator later as some kind of admission. So it lets you negotiate honestly without it being used against you. What does the door cost next to? Nothing. Your time. How long does it take? Well that depends. The better your records are, the less time it's going to take days. Maybe a couple of weeks. Probably the longest part of that is waiting for the contractor to have a slot in their diary. You should almost always use this first, especially if you want to keep working with this particular contractor, and especially again if the sum is modest. You try the cheap door before you try an expensive one. One warning though. Don't kid yourself that endless chasing is the same as negotiating. There's a point when you're not having a conversation, you're just chasing. You're being managed. You're being strung along. When you hit that point, that conversation is done and you need to then move to a door with some teeth. Door number two is adjudication.
Jacob Austin 00:06:08 This is the big one. If this whole series has a center of gravity, it's this. And here's why it matters so much to you specifically. Adjudication was built for our industry. It was put into law to deal with the exactly the problem. You're sitting in firms not getting paid and crucially, going under whilst they waited for the court system to settle their dispute. Most of that time just waiting for a court date. So there's the law, the Construction Act, and it gives you a statutory rights to refer a dispute to adjudication at any time. You don't have to ask permission. It's your right. It sits pretty much in every construction contract, whether or not either party likes it. And if the contract doesn't introduce it properly, the Construction Act Drops in a scheme that makes it work. How that works is very simple really. You server notice you refer your dispute to an independent adjudicator. That adjudicator has 28 days to reach a decision less than a typical calendar month. Put that next to a court case that takes a year or more, and you can see exactly why this thing exists.
Jacob Austin 00:07:23 The decision is binding. You get paid, or they do. But here's the clever part it's binding on what we call a temporary basis. The phrase that you'll hear is pay now, argue later. The decision stands, the money has to move. And if somebody really, really wants to fight it out properly in court later than they can, most of the time nobody bothers and the decision sticks. This door does come with costs attached and it fluctuates. You carry your own costs, win or lose your own legal help, plus the costs of any experts you might bring in claims consultants and whatnot that can run from a few thousand pounds up to multiple tens of thousands, depending on how complex it is, who you put on it and obviously how long it takes. The adjudicators fee is on top of that, although the loser usually ends up covering that and the whole thing is around 28 days from referral. There is an opportunity for an extension. If it's mutually agreed, you would use this when you need quick and enforceable decisions and the issue is the money.
Jacob Austin 00:08:37 This is a workhorse for a lot of you. When the conversation's failed and there's a real sum of money on the table, this is the door to use. But it's not a magic button. The speed cuts both ways. 28 days is fast. That means it's fast for you. And if you're disorganized, if your records are a mess, that timetable will likely hurt you more than it will your contractor. Plus, with you carrying your own costs, regardless of who's right, it's a weapon. But it's a weapon. You have to point carefully. You have to make sure it's worthwhile doing before you commit to it. So a good chunk of the series will be making sure you point that weapon properly. Door number three is mediation. Mediation is different in kind from the others. People mix it up. So let me draw the line. Clearly in mediation, nobody decides anything for you. You bring in a neutral third party, the mediator, and their job is not to rule on who's right.
Jacob Austin 00:09:46 Their job is to help the two parties come to a deal that you can both live with. You sit in one room, the contractor in another. The adjudicator tests your case than theirs. They walk between you both with a number. They try and tease things in a direction that both of you can get to an answer. So it's not a judgment. It's like a facilitated negotiation, assisted by an expert, and nothing is binding in a mediation. Unless you put into writing that you agree to be bound by that decision. The cost is relatively modest. You split the mediators fee, so it's a lot cheaper than the courtroom under things. And for certain smaller or fast track disputes. There are even preset out rates to help you determine a solution. So the cost is going to be fairly small plus your own time to prepare. It can often be set up within weeks, and the mediation itself is frequently a single day. It might be one long focused day, but just the one making it quicker than adjudication by far.
Jacob Austin 00:10:52 You would look to use this when the relationship matters to both you and the contractor, and you genuinely want to settle, but you just can't get there on your own. The dispute might be messy, and it might have lots of moving parts with faults on both sides, and a straight win or lose outcome doesn't really fit. Mediation is to help you to carve out something sensible between the two of you. The honest catch with it is that it only really works if both sides actually want a deal. You can't squeeze a settlement out of somebody who's just turned up to tick a box, and it's voluntary. Although what I would say is that courts are increasingly expecting that you've at least considered mediation before you take a case to court. And they can look unkindly if one party is offered mediation and another has flat refused it for no good reason. Door number four is the heavyweight battle. This is arbitration and litigation. These are the two slow, serious and binding routes. And for most subcontractors, they're the last resort.
Jacob Austin 00:12:00 Not the first, but you should know what they are. Arbitration first. Which is a private, behind closed doors dispute resolution. You put your disputes to an arbitrator, and sometimes it could be more than one. And they make a binding award. The big difference from court is that it's confidential. And you can pick someone with real industry knowledge to help decide the case. The catch, though, with arbitration, is it's only on the table if your contract provides for it. So this is a contract administration technicality. And it matters because otherwise arbitration isn't an option. So under a typical JCT, arbitration isn't automatic. You have to have selected it in the contract particulars. Otherwise dispute resolution is via the court. Under any C you've got the W options w one, two and three. And the tribunal at the end of those can either be arbitration or the court, depending on what's chosen here. You just need to know what your contract says before a dispute so that you can refer it down the correct channel.
Jacob Austin 00:13:12 Arbitration will cost a lot. You're paying the arbitrator. You're paying for the venue. You're paying your own legal costs. And it can be as dear as going to court. Sometimes more decisions can take months, often well over a year. So it's not quick either. What it is, is thorough. And because construction experts can be appointed as the arbitrator, it can be a route to a logical outcome. Litigation is the court for construction. The serious stuff goes to the Technology and Construction Court. The TCC, which is part of the High Court. Smaller claims will go to the county court. A judge decides the judgment is final and binding. And unlike adjudication, it's public and it can be appealed. The cost here is likely to be the highest of the lot, and there's a sting here that's different from adjudication because in courts, costs follow the event. That means if you lose, you can be paying a chunk of the other side's legal bill on top of your own, or all of it.
Jacob Austin 00:14:19 That risk alone can make people think very hard. Plus, the timescale is bonkers. It can be a year or more just to get to trial, so you would probably be using these only as the final option when the sum of money at stake fully justifies the cost and the wait. Or maybe you need something that an adjudicator simply can't give you. So for day to day payment problems, this is never your first move. This is the heavy artillery. And just so that it's in your head for later in the series, the TCC, the court is also where you go to enforce an adjudicators decision when the other side decides to ignore it. We've got a whole episode on that one coming. The honest thing is, though, the right answer might not be any one of these doors. Sometimes you're going to look at it honestly, and the sum is just too small to justify the cost and the grief of any formal route. Sometimes your records are just too weak. You might be right. You might be owed every single penny, but if you can't evidence it, you're going to struggle to have a case.
Jacob Austin 00:15:30 At best, you've got a grievance. And those are far from the same thing. Another issue is that sometimes if your opponent is in financial jeopardy, maybe they're heading towards insolvency. Or maybe they're even there. You can win the cleanest adjudication in the world, and you can be left holding a decision that's worth nothing because there's no money behind it to pay. Winning on paper and getting paid are different things, so part of being good at getting your hands on your money isn't about knowing how to fight, it's knowing when to, when not to, and which route to follow with your eyes open. A lot of the time the contractor will be in the same boat as you. They will know that defending a case, defending an adjudication, a court case in arbitration, whatever it's going to cost them money. And sometimes the threat of that followed up by a mediation or a sensible round the table conversation, can lead you to a better outcome and sometimes more money in a quicker turnaround time than the formal dispute would have taken.
Jacob Austin 00:16:36 And that is because the contractor will know going to adjudication, for example, is going to be like throwing good money after bad. They're going to have to pay something to settle anyway, but if they lose, they're probably on the hook for 20 grand worth of adjudicators, cos plus their own claims consultants, time or lawyers or whoever, they get in to defend them. So we're probably talking the best part of 50 grand. And when you throw that on top of the likely settlement figure that they'd be willing to pay. Let's say we could walk away with maybe 30 grand of that. And everybody still saves the time that they would have invested the late nights and all the stress involved in actually seeing the dispute through. Then a quick negotiated settlement might make everyone a winner. The one thing that that situation will hinge upon is the strength of your records. So over the next few weeks, as we embark on a learning journey through disputes and adjudication, I want you to have in the back of your mind one question what's my evidence? If you've got evidence, you've got records.
Jacob Austin 00:17:41 You've got a case. Each of those formal routes rely on that same evidence, and the same evidence is going to give you the strongest possible negotiating hand if you don't follow a formal dispute route. So any way around it, you should be practicing the mantra records. Records records in addition to records to follow a formal dispute route. The other thing that you need is for a dispute to have actually arisen. That means it has to have crystallised, and this can be the bit that catches people out more than anything else. Subcontractors who are owed the money, but they fire off their adjudication notice too early before the dispute is properly crystallised. Then the whole thing collapses because the adjudicators got no power to decide it and they've shown their hand and burned their costs in putting together a claim for nothing. It's really important, but it's really under talked about in the whole area. So next week that's exactly what we're going to be doing. Crystallisation, what it actually means, how you know, when you've got there and how to pass that bar cleanly so that nobody can knock you out before you've even started.
Jacob Austin 00:18:58 If that's useful, then make sure you're following so that next week's episode can land as soon as it drops. My mission with this show 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 away from today's episode, then please share it. Pass it on to somebody else who'd 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 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.
