Jacob Austin 00:00:00 Hi there all Jacob Austin here and welcome to episode 151 of the Subcontractors Blueprint, the show where subcontractors learn how to ensure profitability, improve cash flow and grow their business. Today's episode is all about the payment fight and it's smash and grab versus true value adjudication. This continues our disputes mini series, and we'll be exploring how a missed notice can force the full sum out of a main contractor, and why your monthly application is where that battle is won or lost. So let's dig in. The biggest lever that you've got over a main contractor is not a solicitor, but your monthly application. Get that right and one missed deadline on their side can hand you the full sum that you've asked for, whether they like it or not. If you get it sloppy, then you throw that power away 12 times a year, probably without even noticing you've done it. We've already looked at the map, and we've looked at the gate that you've got to pass through to have an adjudication. We've also looked at the machinery, and today we're putting that all in place and covering the fight that you're most likely to actually have the payment fight.
Jacob Austin 00:01:32 And let's be honest, this is what most disputes are really about underneath. You've done the work, you've applied for the money and it hasn't landed. Here's the thing I really want you to take away from today. The battle isn't won in some adjudication. Nine months down the line, it's won or lost. Every single month. Every single week with the records that you're keeping. But on a monthly basis, it's how you make your application and whether you watch the deadlines. The leverage is built right into the payment cycle, and a lot of people just ignore it. Let's look at a normal cycle. So every month you put in your application for payment, the application says here's what I've done and here's what I'm owed. And that kicks off a sequence of dates that your contract lays down. Those dates matter more than almost anything else in your commercial month, so you should learn them or mark them out on a calendar or a tracking document so that you know them. After your application, there's a due date.
Jacob Austin 00:02:35 Then the main contractor gets a chance to serve what's called a payment notice, telling you what they reckon is actually due. And this is the key one. Then if they want to pay you less than that, they have to serve a pay less notice and they have to serve it in time a set number of days before it's called the final date for payment. Your contract sets out exactly how many days, and it's different between the standard forms. It's also an area that main contractors tinker with regularly. So don't guess. Don't assume you need to read the contract to find out. Now here's the whole game in one sentence. If the main contractor misses those notices, if they don't serve a valid payment notice and then a pay less notice in time, then the law says the sum you applied for becomes the notified sum, and the notified sum is payable in full. That means all of it, whether or not it reflects what the value of the work really is. That's the most powerful sentence we're going to cover in this episode.
Jacob Austin 00:03:38 If they miss their notices, they owe you the number that you wrote down, not a number. They think it's fair, but your number and adjudicating to get your hands on that cash is what the industry calls smash and grab. You go to adjudication and you don't argue about the value of anything. You don't have to prove your measure or defend your rights. You have to prove one single thing that the contractor has missed their notices. So the notified sum is due and payable. It's a technical knockout, fast, clean and brutal for the other side because there's almost nothing they can say or do about it. Sitting directly opposite the smash and grab is the other kind of payment adjudication, the true value. That's where somebody asks the adjudicator to actually roll up their sleeves and help us to work out what the account is genuinely worth on the merits of the information that you provide. Line by line. Right by right. It's a much slower process, and it's a proper fight with evidence on both sides. So these are two very different animals.
Jacob Austin 00:04:45 Smash and grab is about their admin failure. True value is about the real worth of the work. Two entirely different processes and you need to separate them in your head. One big question that you should be asking right now if I smash and grab them for a big number. Can't they just fire straight back with a true value adjudication and wipe that value out the next day? That's a good and important question, because for a while the law on that was genuinely up in the air, and it got settled by a case S and T versus Grove. And what the Court of Appeal there decided is another important fact that you need to lodge in your brain for good. Yes, the main contractor can go and get a true value decision, even though they've missed the notices, but they're not shut out forever. There is one caveat, and it is quite a big caveat, and that is that they have to pay you all of the notified sum first before they're allowed to start that true value fight at all.
Jacob Austin 00:05:48 Think about that from a cashflow perspective. The money comes to you now and it sits in your account. It's only nothing for the contractor and everything for you. While the slower argument then plays out, the law builds in a hierarchy and your immediate payment sits on top of it. It is pay now, argue later. That gets hard cash into your pocket. That's the point of that mechanism. And it was designed that way on purpose to protect cash flow for companies like yours. So where does that go wrong for subcontractors? Because it does all the time. And there are four ways, four patterns of how it does go wrong. The first and the biggest by distance is a sloppy application. This whole mechanism only fires properly if your application is unmistakably an application, clearly marked as your claim for payment in the right form, sent at the right time with a clear headline. Some the courts have thrown out smash and grab adjudications where the application was vague or it's buried in some email, or where you honestly couldn't tell what it was meant to be.
Jacob Austin 00:06:57 So if your applications go in as some jumble of spreadsheets with no clear way of working out how much you think you're owed, then you disarmed yourself before you've even started. The second rate can go wrong is not knowing your dates. If you don't know the final date for payment and the Payless deadline that hangs down from that, you can't spot it when it's been missed. And if you can't spot the mis, then you can't grab. It's like leaving an open door every month and never once checking that the contractors walked through it. The third way is treating smash and grab like it's a lottery win. It isn't. Remember, Grove? They can pay it, and then they can come straight back after the true value. And if you applied for far more money than the work is actually worth, you could be handing back a big chunk of change. So don't spend it all on the day it lands. And don't kid yourself that grabbing on a wildly inflated number is clever. It's a loan with a clawback attached.
Jacob Austin 00:07:59 The fourth way this can catch you out is forgetting that you're not just a payee on this job. You're a payer, too, and you set up your own subcontracts with your own suppliers, which means the same exact weapon can be pointed straight back at you by the people you appoint. That means if you don't serve your payment and pay less notices down the chain on time, then one of your sub subcontractors can smash and grab you. That regime can cut both ways, and you've got quite a lot of admin to do to stop yourself from being completely open downwards to your own supply chain. One more thing on the grab, because I don't want you walking away and thinking this is all about firing in inflated applications and catching people out. It isn't. The smartest way to use this mechanism is almost boring. You apply every month for exactly what is genuinely due. Clean. Honest. Properly evidenced. Then if they miss their notices, the grab gets that fair number paid and paid quickly. When the true value calculation comes, it barely moves because your number is right all along.
Jacob Austin 00:09:12 That's the version of this process that actually builds a business. The other version, where you ran in a wildly inflated number hoping to grab a windfall, might win you a short term cash spike, but it invites an instant true value clawback. It burns the relationship with a contractor you might want to work for again, and it marks you out as somebody that plays games. An honest number applied for properly backed by records. That's the play. Let's put this in a scenario so that you can see how it works out. Let's say there's a cladding subcontractor. They fired in a monthly valuation for £90,000 for the period. It's a clean application, clearly marked. It's got a correct sum on the front correct date and it's been delivered to the right place. Now the main contractor's chassis is snowed under. Or maybe they're just sloppy. And the payment deadline for their painless notice comes in and it goes out. Nothing served. No valid payment notice, no valid pay. Less notice. The final date for payment arrives and only 40,000 turns up.
Jacob Austin 00:10:24 In the old World, the subcontractor, grumbles, takes the 40 moves on with their work nursing a grievance. In the New World, the subcontractor knows their dates. They can plainly see that the notices were missed, so they smash and grab quick adjudication. One argument only you missed your notices. The notified sum of £90,000 is due. The adjudicator doesn't value a single square metre of cladding. They just look at the dates. They order the balance to be paid. The subcontractor then gets the rest of the £90,000. Now the main contractor is not happy and they reckon the job was only really worth 70. Fine. They're allowed to chase that, but because of Grove, they have to pay the 90. Only then can they start a true value adjudication to try and argue it back, to get down to 70. So the subcontractor has had the full 90 sitting in their bank account the entire time that argument is running. And because the subcontractors application was honest and their records are solid, when the true value does get finally tested, it lands pretty close to the 90.
Jacob Austin 00:11:35 Anyway, the technicality has got the cash in fast, but it's the records that have made it stick. So how do you do that on your job? There are five things. The first one is basic admin. Really, it's making your application as bulletproof as it can be as an application, clearly headed in the right form. If the contractor specifies one with the right date on it, with a clear calculation showing what you think is due. Never let there be any doubt about what the document is, and it's good practice as well to send it on its own communication, not bundled together with a load of change quotations, minutes from a meeting or anything else that's irrelevant to the valuation process. That way, you've got a clean and clear record that you can put in front of somebody to say, this is when my application was served, and they'll easily be able to deduce from that application how much is due. The next thing you need to do is to know your dates cold, the due date, the final date for payment, and the Payless deadline need to be scheduled out.
Jacob Austin 00:12:42 Maybe write them on the wall on a calendar they come from your contract and it varies between forms, so you need to get them from your contract itself, not from memory or from the last job. Each contract is different. Each main contract is. Amendments are different, and sometimes depending on the SHS that's putting the order together. They might vary some of the terms themselves. So the point is you always need to check diaries, those deadlines the moment you apply. The second that a Payless notice deadline passes with nothing served. You want to know that same day because that's the day your leverage starts to become real. Next, serve your notices downstream every single time. Protect your own back. Don't be immaculate on your claim upstream and forget about your own subcontractors. You also have to treat cash coming from a smash and grab adjudication as something that you might have to justify later. That means you need to have your records tight so that if a true value adjudication comes and it might well that your number holds up.
Jacob Austin 00:13:49 The grab gets you paid fast. The records are what keep you paid. This is the thing that you can't make up later. So keeping records currently at the time contemporaneously as we say, that's the absolute key to success. If you go for a smash and grab adjudication, you can almost guarantee that the contractor will roll out a true value sometime later. They're going to be in control of that. It'll be their notice, their referral. That means it will come at their timing when they're ready, and they probably hoping that you aren't ready. If there's a significant difference between the amount that you're asking for and the true value of the work, then you can almost guarantee that the contractor is going to come back and do that true value process. So you may as well start preparing for that whilst your smashing grab adjudication is ongoing. Bear in mind, as we said in the last episode, the process is quite quick. You've got limited opportunity to put your response case together, and that means that keeping regular records is something that you have to get into the habit of doing.
Jacob Austin 00:14:53 You simply won't have time to go back and create them in the short timescale that you've got under an adjudication. Key things to take away from today's episode. Smash and grab. If the main contractor misses a valid payment notice and a valid pay less notice, then the sum that you've applied for becomes the notified sum payable in full. Whatever the true value is. Your leverage lies in your monthly application. A clearly identified, correctly timed, and correctly quantified application is what makes the mechanism work. Vague applications numbers on a piece of paper can be thrown out. Know your dates from your contract, the due date, the final date for payment, and the painless notice deadline. They vary by form. They vary by contractor. They sometimes vary within the contractor as well. So you need to check this on every single job that you do. If you can't spot the missed date, then you can't smash and you can't grab from the Smt versus Grove case. The payer must pay the notified sum first if it wants to adjudicate the true value.
Jacob Austin 00:16:04 It does that afterwards. So it's pay now, argue later and it works in your favor. A smash and grab is a cash flow weapon. It's not a windfall. So overpayments can be clawed back via a true value adjudication. So don't over claim and don't spend blindly all of that money if you're going to have to pay some back. Remember, you're a payer too. That means serving your own payment and pay less notices downstream on time, or your own subcontractors can use that process against you as well. Most importantly, records still win. The grab might get the cash in fast, but it's going to be your contemporaneous records that's going to survive the true value test. I've spoken about records on the podcast before. To give you an idea of what the standard records that I think you should be keeping as a matter of course. And that's the payment fight how the cycle hands you leverage every single month, and if you're sharp enough to spot it, then you can reach out and take it. Next week we flip to the other side of the table, defending, because sooner or later someone adjudicates against you, and when they do, your first question isn't going to be whether they're right, it's whether they're even allowed to be there at all.
Jacob Austin 00:17:27 So we're talking jurisdiction, natural justice, the ways that a referral can get knocked out before the merits are ever reached. And crystallisation, which you met a couple of weeks ago can come back as your shield. Don't miss it. My mission with this podcast is to help the million SM contractors working out there in our industry. If you've taken some value away from today's episode, then I really need your help to share the show and pass that value on to somebody else who would benefit from hearing it, so that I can help as many people as possible. And thanks for tuning in. If you like what you've heard and you want to learn more, then please do find us at www.SubcontractorsBlueprintUK. 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.
