Jacob Austin 00:00:00 Hi all, Jacob Austin here and welcome to episode 159 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 ten excuses that subcontractors make for not reading their subcontracts, what each one can actually cost you, and the half hour habit that replaces all ten. So let's dig in. Now, ten reasons subcontractors give for not reading Their subcontracts. Every one of these can sound reasonable, for every one of them has a price tag that's going to cost you genuine money out of your pocket, because not reading a clause doesn't mean it doesn't exist. It doesn't delete it. It just means if you breach it, you probably don't realize that you have. Now, we've probably all seen this scenario a job goes wrong, the program slipped, the money's tight, and somebody upstream is sitting on a payment. And at some point in that mess, maybe six weeks in, somebody finally opens the subcontract. And there it is, a clause that decides the whole argument.
Jacob Austin 00:01:30 And it's sitting in black and white, exactly where it's been since before you started the job. It isn't that subcontractors don't have contracts. Almost everybody has a contract. It's that hardly anybody reads the one that they're currently working under. And the contract is incredibly important. It's the only document in the entire job that tells you how much you get paid. When you get paid, what happens if you're late? What happens if the contract is late? And what happens if the sky falls in and the whole thing falls apart. Everything other than that is conversation. Email change, the pre start meeting the handshake with the SHS that has always been sound with you. None of those things change your terms, but it can make you feel like it has. As you go through these ten excuses. You probably recognize a few of them, and you might have even said a few of them yourself. And I'm not calling any of these out to make anybody feel silly, because most of these can sound perfectly reasonable on the surface.
Jacob Austin 00:02:34 But what I do want to do is highlight to you why that's a problem, and why you should really read the document before you put pen to paper. Excuse one they won't change it anyway. This is really common and there is a grain of truth in it. If you are a £5 million turnover business bidding to a tier one contractor who bulks the same schedule of amendments onto every project they run, you ask for a change. They say no. Sometimes that's exactly what happens. But look at what that excuse assumes. It assumes the only reason to read a contract is to change it. And that's wrong. And it's expensive as well. There are two reasons to read it. Negotiation is one. Running the job is the other, and it's the bigger part of it. If your subcontract says you must give a written notice of a delay event within five working days of becoming aware of it, that clause governs your entire site paperwork, whether you negotiated it in or out or changed it or not. Not reading it doesn't delete it.
Jacob Austin 00:03:37 It just means you'll breach it without knowing that you have. The negotiation point is overstated too. What actually gets amended is rarely the whole clause, but it's a number a cap on your design liability. A notice period that was five days becomes 10 or 15 a carve out so that you're not carrying program risk on dates that were fixed months before you are appointed. Those tasks get agreed more often than. People expect because they're small, they're specific, and they're probably not threatening anything that the contractor actually cares about. So here's what to do. Even if you want to change nothing at all, write notes about the important periods before you mobilize. That means notice periods, payment dates, caps the numbers that might hurt you. That note is what you need to hand to your site team, including your manager, your contracts manager, your QTS. If they get that, they can add value. They can work within the parameters. If they don't get it, you're in the dark, you miss opportunities, and your default position is missing things because you didn't know about them.
Jacob Austin 00:04:45 I've got some sympathy for this next one. Number two, we start Monday. There's just no time. The order lands Thursday afternoon and your first delivery is Monday morning. Wagons hauling plant. Labor booked materials on call off already to be delivered after you get there. Nobody's sitting down with 40 pages of amendments on a Friday night with a pint. It's hardly good pub banter, but think about what starting blind actually does. The Other Side has had that document for probably months. It's probably the same document they use day in, day out, and they know it inside out. Their legal team has drafted it, their commercial team has amended it. The SHS knows precisely which clauses they'll be jumping on. If there's a delay, you've had none of that. You walked into a relationship where the only party that shred the terms is a contractor, and you started spending money on it and the clock's already running. Notice periods don't start when you get around to opening the file and reading when you need to submit a notice, they start when an event happens.
Jacob Austin 00:05:55 If you're three weeks into a job before anybody reads the contract and there's a seven day notice period sitting on delay events. Then, quite logically, if anything has happened in that first three week period, it's gone. It's not disputed. Your entitlement is gone. So you need to at least do this 30 minute triage instead. Not reading the whole thing, but you're hunting for five specific things. Let's start with payment. The one everybody's interested in. Cover the due date to the final date for payment, and what you have to do to submit a valid application to trigger payment. Then you need to cover notice periods. That's for delays, variations, anything that's drafted as a condition precedent you need to pay particular attention to. Note down as well what you need to do. For suspension and termination there's and yours. Thirdly your scope. Most of the documents will be incorporated by reference. So you need to know which documents you're incorporated. You need to check that they're the same as the ones that you priced, and there's not some sneaky additional variation work being captured on a contract drawing because the contractors snuck in a different revision.
Jacob Austin 00:07:10 Fourth, you need to know the dates. How long have you got to do your subcontract works? Are there any sections or each section that works broken down into reasonable? And have you got clear defined periods to start and finish? And finally, the numbers that hurt liability caps delay damages retention. You can do that in 30 minutes. Everything else can wait a week to put some more meat on the bones, but those five can't. Excuse number three is massive. It's a standard jct. It'll all be fine. This one costs a lot of money. Precisely because it's half true. The unamended JCT subcontract forms are reasonably even handed. They were drafted by a body with contractors and subcontractors around the table. If somebody handed you a clean, unamended subcontract form, he'd be in a decent position. But when did you ever get one of those? The document that decides your money isn't the printed form, it's the schedule of amendments bolted onto the back of it. And that's the bit where the contractor is stretched out.
Jacob Austin 00:08:20 The payment periods shortened all of the notice periods tinkered with your design obligations, and the cap on your liability is watered down. It's not uncommon to see 2030 pages of amendments come from a contractor, and it turns a balanced contract into a very one sided document. And you simply wouldn't know it unless you read them. And now you need to read the standard subcontract terms alongside the amendments. If a clause has been deleted or rewritten, the only way you get to find out how the amendment impacts it is by comparing the two side by side, and the precise wording matters, not just a generalized error of the clause. Just to underscore that, in a case between William Hare and Shepard Construction, Shepard had a clause in their subcontract built around a specific list of insolvency acts. It was drafted by reference to the Insolvency Act, as it stood at the time, naming the date of that particular act. The company upstream then went into administration, but it was by a route that had been added to the act at a later time.
Jacob Austin 00:09:32 A more current version of the same legislation, but the clause didn't incorporate that legislation. It incorporated the stated version. The Court of Appeal held that that clause stood as it was drafted, so that administration event wasn't ring fenced by the clause, and Shepard had to pay out just under £1 million that they hadn't been paid themselves. Now, all of the mechanism that sits behind that case is probably enough material for an episode of its own, so I won't go into it in any more detail than that. But please take from that that the precise wording of a clause is what matters, and precise wording in that case lost £1 million. Excuse number four. It's back to back, so it must be fair. But back to back doesn't mean equal. Risk flows downhill, and unfortunately, you're standing near the bottom of the hill. Here's what that looks like in money. Delay damages set at the main contract rate and applied against your package. £15,000 a week against a £200,000 order isn't unusual. 6 to 7 weeks worth of delay.
Jacob Austin 00:10:42 And the damages are now half the value of your work programme. Dates that you're measured against were agreed months before your appointed, with no input from you. And notice periods are engineered so that you have to notify the main contractor, giving them time to notify upstream, which means your window is always shorter than theirs. That's before the contractor goes silly with his own amendments and reduces that to three days, maybe even 48 hours. And there's another line that catches a lot of people, and it usually reads something like the subcontractor is deemed to have knowledge of the main contract terms. But have you seen the main contract? Usually not. Sometimes it's offered for inspection at their head office. And who the hell goes and digs it out and asks for it? Almost nobody. Why not ask for it? Ask for a copy with the commercially sensitive figures redacted if they refuse. Put that in writing and keep it. You've requested the main contract terms they weren't provided, and you don't accept incorporation of terms that you can't be given the chance to read.
Jacob Austin 00:11:53 Now, that won't automatically prevent those terms from being incorporated. Just being straight about it. Incorporation by reference generally works, and simply not having read something isn't a defense, but what it does is preserve an argument, particularly around terms that are unusual or onerous and creates a record at the right moment, rather than 18 months later, that you've been prevented from seeing what those terms are. And that's a commercial position. It's not a legal guarantee, but you've got an argument and that beats having no argument. Whatever answer comes back. There is risk that you can't see and that needs to be reflected in your price. Excuse number five. We've worked with them for years. The relationship is real and I won't dismiss that. But good relationships get variation degreed on the phone and get you paid when paperwork isn't quite right. But contracts don't get read. When things are going well, they get read when things start breaking down. The entire purpose of the document is that it governs what happens after the goodwill has run out and the people change.
Jacob Austin 00:13:05 The show always sorted your variations, takes a job somewhere else, or they get moved to a different site. A new commercial director arrives, and he's given a mandate to tighten things up and achieve more margin. Or maybe the business gets sold. The parent company runs into trouble. And one of those points, it doesn't matter how much anybody likes you because the money stops moving. There's a different version of this as well. Terms drift from one order to the next. The main contract is legal. Team is probably tinkering with its clauses, changing bits because they've just had to pay out another 200 grand for something that they could cover with a bit of clever editing. So from one subcontract to the next, your risk is moving, and nobody's sending a letter to announce exactly what they're changing. You'd probably notice it if it was payment terms that are moving from 30 days to 45, from 45 to 60 and 60 to 75. But do you notice a liability cap that used to be there? Stop us being there.
Jacob Austin 00:14:10 Do you notice the ground risk changing and you holding more of it? If you're not reading each order because you assume it's the same as the last one, then somebody else is making big money decisions on your behalf, and you only find out about it when you come with a problem. That means you need to read every order, including the ones from people that you like. If you work repeatedly with the same client, you can get AI to compare two different versions of their terms to see if they're the same and see what's drifted and highlight it to you. And then you know about it upfront instead of after it's cost you excuse six. It's only a small job. The value of the order and the size of your exposure are two completely different numbers, and confusing them is how small jobs can get you in trouble. A £40,000 order can carry uncapped liability for defects. It can carry delay damages at main contract rates. They've got nothing whatsoever to do with the value of your package. It could carry a design obligation with no cap on it, an indemnity that picks up consequential losses, which might mean somebody else's lost revenue becoming your problem.
Jacob Austin 00:15:26 It can carry an insurance requirement that you don't actually meet. That can be really painful. If your subcontract requires Pye at £5 million and you only carry two and you're in breach of contract from the day you sign. And not only that, you've accepted a contractual liability. That's beyond what your policy responds to. And you may find that your insurer declines to cover the very thing you've agreed to carry. That means your business being liable for claims that come directly out of your pocket, instead of falling to an insurer. So the test here needs to be an exposure test, not the value of your subcontract test. Before you sign anything, you need to ask yourself what's the worst realistic number this job could actually cost me? If it goes badly, that's not the order value, that's the exposure. That number could be bigger than your margin for the year. And then you really need to think about whether you do the work or you turn it down, or at least you qualify your bid and you know your realistic caps to your liability, to your insurances that protect yourself.
Jacob Austin 00:16:32 Excuse seven. This is legal stuff. I'll get a solicitor if there's a problem. There's two things wrong here. And the second one is the more expensive one. First, you don't need to be a lawyer to read a subcontract commercially. You need to find the big money clauses. There's probably only about six places to look for these. They'll sit in roughly the same place every time. Payment variations. Delay. Extension of time, set off deductions liability and caps termination. You already understand what those mean on a job. So what you're looking for is the process and the deadline attached to each one and whether it feels reasonable. Secondly, if there's a problem, it's too late. The clauses that lose your money are the ones with clocks on them. A hard deadline. By the time a situation is obviously bad enough that you're sending it to a solicitor. You're probably months past the notice window. A good solicitor will then explain very clearly at your expense, at several hundred pounds an hour, exactly what you lost and when you lost it.
Jacob Austin 00:17:40 They can't go back and serve the notice for you. Look at the cost either way round. If you don't feel comfortable reading your own, subcontract yourself. You think it's beyond your capabilities. Fair play to you for being honest about it. Get some advice. A couple of hours of a decent construction solicitor or a commercial consultant reading your subcontract before you sign it against the cost of an adjudication or a claim that you can't run because you didn't notify it. The return on that small sum of money, that few hours worth of cost isn't a close call. It isn't even in the same order of magnitude. We could be talking multiple thousands of pounds in lost opportunity, in contra charges in set off, or a combination of all of them. That's a lot more expensive than a few hours of a solicitor's time. So spend the money up front and protect yourself from the start. Excuse eight. We haven't signed it, so we're not bound. This one is dangerous because people treat it as if it's protection when it's actually exposure.
Jacob Austin 00:18:45 Contracts can be formed and executed by conduct. You don't need a signature on a page. If terms have been put forward and you've turned up and done the work. A court can find that you agreed those terms by that performance of getting on with it. The case people point to here is PT's flexible systems against Muller. The parties negotiated. They had a draft that said it wouldn't take effect until it had been executed by both of them. They never executed it and the work went ahead anyway when they fell out about it. The Supreme Court held that there was a binding contract, and that the requirement for execution had effectively been waived by the way the parties had behaved. They'd done the work they'd performed as per the contract. So whether or not they signed it, it got judged objectively on what people said and did. So if you've got an unsigned order in your inbox and you're working on that job, that's probably the conditions you're working under right now. And if you haven't read it, you've got genuine uncertainty about what your terms are whilst you're spending money on site, which is the last position you want to be in when an argument starts.
Jacob Austin 00:20:01 The action for you here is simple. Don't treat unsigned as safe. Either agree the terms in writing before you mobilize or write and state plainly, or what objections you have or what terms you're working to. Your silence plus performance means you ending up on their terms instead of yours. Excuse number nine. If I qualify it, I'll lose the job. Now, I'm not going to pretend that that pressure isn't real. In a competitive tender with three of the subcontractors on the list. The one raising all the queries and objecting to subcontract terms can look like hard work. But on the flip side, the one coming back with the most queries always looks like they're the most interested in the job. They look like they've considered everything properly, and they've priced actually what they need to produce instead of a vague guess at it. The critical thing, though, if you're going to challenge the terms, is the timing. Your strongest position is at tender stage before award, whilst the main contractor still comparing you to other subcontractors and they haven't committed to anybody.
Jacob Austin 00:21:10 It's decent again immediately after award, when they've told the client in their monthly report that they've appointed you and swapping you out becomes inconvenient. Your weakest position by a long way is after you've started on site with labour committed and materials ordered. So the best place to do it is to qualify at tender. It's normal. Contractors expect it to a degree. They price for it as well with elements of contingency. The thing that really winds everybody up is if a subcontractor says nothing, accepts everything, and then starts arguing about it the day before, they should start on site, or even worse, in month four. So a sensible thing to do would be to make a standard standing set of Qualifications 3 to 5 items attached to every sender you send. In addition to the items that you might come across on that particular job, covering things like payment terms, cap on liability, exclusion of consequential loss, program dates subject to confirmation on appointment, design responsibility being limited to reasonable skill and care, even throw in appointment on JCT standard subcontract terms.
Jacob Austin 00:22:24 The same list every time stops it becoming a confrontation and becomes part of how you do your bid. There might be times when you lose work based on a qualification, but the question that you have to answer yourself on this one is whether if you lost that work because of a qualification, will you ever going to make any money on it? Or you're taking on board a risk that you couldn't qualify out, that the contractor was going to hold you to at a later time? If you won that job on terms that you can't survive, then you haven't won. You've made a slow loss with a start date and a program to it. Excuse ten. The contract goes in the drawer when we're on site. This is the one that separates subcontractors that get paid from those who feel hard done by. And this is where I make the point that reading the contract once at the start doesn't fix everything. It's a great thing to do because it gets your eyes open to the risks that you're taking on board at the right time, and it gets you knowledge of the deadlines and the obligations you need to comply with.
Jacob Austin 00:23:28 But it isn't a legal artifact. It's the operating manual for your commercial aspects of the job. It tells you what date to apply on, what a valid application and notice has to contain, who it has to go to, what address to send it to, how long you've got from the events to submit your notice that is live operational information for the people running the job. It's usually sitting in a file that only the commercial team has ever opened. How money gets lost is completely mundane. A delay event happens. Everybody gets busy dealing with it, which is the right instinct to do on site. It stops the loss becoming even bigger, but nobody writes anything down. Six weeks later you put in for an extension of time and the answer comes back that no notice was given within the period and that the notice is a condition precedent. So therefore any entitlement is gone. That means a perfectly right and valid delay can be missed out upon because you didn't serve a piece of paper on time. That means you need to digest the information in your contract.
Jacob Austin 00:24:39 What the notice periods are, what triggers them, what the application dates are. Anything unusual that the application needs to contain? Create a one page document as a fact sheet for the job that you can send to all of your relevant team members. I can use that to stay on the straight and narrow because technicalities matter. Sending a notice to the wrong person can be enough to invalidate it. So the person running the job who's empowered to source an extension of time for your company needs to know the right way to do it. That stops you from losing genuine entitlement because you didn't know there was a clock running, and that there are ten excuses and ten reasons why you should read your subcontract anyway. Every single one of those is a reason to defer. Do something later. It's someone else's job. It's probably fine. I don't need to worry about it. Not right now anyway. But in every case, the cost of deferring costs you money. The main contractor doesn't defer reading it at their end. They read it before they've sent it to you.
Jacob Austin 00:25:44 The fixes are genuinely quite straightforward. A 30 minute triage before you mobilise a one page note standing qualifications that you reuse on every tender. A digest of important dates and obligations. That's all you need to do. It's an afternoon's work to set that up once. And it's half an hour, maybe an hour at tops per job to do that after that, to keep you compliant. To protect your margin. It's the cheapest margin protection available to you. It costs you nothing but attention unless you farm it out to a lawyer. And even that a small investment of a few hundred pounds. If it saves you thousands of pounds worth of issues down the line, it's a bloody good investment. And there you have it. Ten excuses coupled with the ten risks and counter-arguments. I hope you've got something useful out of that episode. It really should reinforce my tagline of missed the contract detail, and the commercial risk falls on you as if you haven't read the contract detail. You're definitely going to miss it, and you're opening your doors to all manner of risks that you don't know about.
Jacob Austin 00:26:54 That's the one thing that I want you to avoid. And now you're aware because you've listened to this podcast. My mission with this show is to help the million SME 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'd 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.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.
