Jacob Austin 00:00:00 Hi there all Jacob Austin here and welcome to episode 161 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 walking off site and crucially, how to do that properly. Because there is a massive difference between suspending lawfully, terminating lawfully and also repudiating your own subcontract. And if you get it wrong, it can be absolutely the most expensive decision you make on a job. So let's dig in. I bet everybody in this industry has said at least once. Right? That's it. We're off. Let's say you've got 100 grand outstanding three weeks past the final date for payment. Nobody returning calls. Your lads are still turning up every morning digging somebody else's foundations on your money. So you pull them off off site. That is. It feels like the only card you've got left to play. But here's what happens next. And you need to be aware of these potentially massive consequences because you just downed tools and walked off.
Jacob Austin 00:01:34 You've breached your contract, and the contractor engages another ground worker at short notice to finish your package. The remaining works were worth 240 grand in your subcontract. The replacement cost them a little shy of 400 grand won. They're not tied into a fixed price. And two, they've got to get somebody to mobilise at the drop of a hat. And that's what short notice costs sometimes. So around about 160 grand's worth of delta across the same scope of works. And under most subcontracts, the contractor can come straight to you and take that out of your pocket so that 100 grand that you are owed, it's gone. And so is a chunk of retention year out from previous projects. Then, to make matters worse, the job has run five weeks late. Delay damages come down the chain 20 grand a week, another 100 grand. On top of that, the contractor set up costs, his site management, all of his site based overheads. That's another 20 grand a week. Another hundred grand. You're now in the hole for 360 grand on a job where you thought the contractor was in the wrong for not paying you, they're now pursuing you for a big debt.
Jacob Austin 00:02:50 That is the risk of getting this wrong and it's not a rare outcome. This is something that subcontractors get wrong time and time again. But there is good news. There is a way to stop all or some of your site work in a safe way that gets you paid. It puts your completion date back, it pays your demobilization and mobilization costs, and it leaves you with no default or whatsoever. It's backed by the Construction Act and almost nobody uses it properly. So today we'll go through that. How you can stop work, what the law actually requires you to do, the mistakes that can turn that good position into a potentially bad one, and the sequence you need to follow when you're standing there at seven in the morning with no money in your bank account and deciding whether to send the lads home. One thing before you start suspension, you can do it yourself quite adequately with a bit of good discipline. Termination, on the other hand, is a tricky subject and I fully advise you to take some legal advice before you act and not afterwards.
Jacob Austin 00:03:57 The 360 grand costs that we just incurred on a whim. These kind of figures can soon rack up the cost of an hour with a construction solicitor is absolutely nothing in comparison to that, and it's worth taking the advice and getting it right. If you need one, just shout at me. I can get you in contact with a good one. Now let's move on to the four routes to legally and safely suspending. The first one, of course, is statutory suspension. This is the one built for exactly this situation, and it's the first one to reach for section 112 of the Construction Act. If a sum due under the contract hasn't been paid in full by the date for payment and no effective pay less notice was given, you have the right to suspend performance of all or any of your obligations to the party that should have paid the sum due in that case is the notified sum. So if they pay less than that, notified some, and they don't give you a valid pay less notice, they failed to meet their obligation under that clause.
Jacob Austin 00:05:03 But if they did serve a valid pay less notice on time and paid what? That said, there is no unpaid sum due and that right to suspend doesn't appear and doesn't arise. So before you do anything else, you need to go and check your notices. You need to know how much you are due to be paid. You need to check facts like was the application in on time? Was the payment notice correctly served or was a default payment notice in play? Do the dates tally up against your subcontract? If you can't state confidently what the notified sum was and when the final date for payment falls, you're not ready to suspend. The other part to think about is the phrase any or all of your obligations. That's important and it's underused. You don't have to abandon the site wholesale. You can choose to suspend a specific work stream. Keep the bits going that protect completed work, or keep your compound and your security in place. A targeted suspension can be more effective than the other. It hurts the program, but it doesn't necessarily wreck your logistics.
Jacob Austin 00:06:12 Demobilization and immobilizing. Now the procedure is relatively short. At least seven days written notice has to be issued to the party in default stating the ground or the grounds. Seven days is minimum. Serve it the way that your subcontract requires notices to be served. Getting the wrong service method is a free defense that you're handing the other side. So if it says email, that's what you do. If it says delivered by hand to the contractor's accountant, that's what you do. Then what happens? Assuming the contractor doesn't pay you, then on the eighth day you can suspend, you can withdraw from sight. The right to suspend ends when the notified sum is paid in full. And under the Construction Act, as amended. You are entitled to a reasonable amount for costs and expenses reasonably incurred as a result of exercising your suspension. Right. That covers demobilized and demobilized, that might be plunked off and back. Labor stood down and brought back storage costs the lot. And on top of that, your time for completion is amended as well.
Jacob Austin 00:07:26 For both the period of suspension and for the time it reasonably takes you to get back going again. So this is really important because it protects you. A properly executed suspension doesn't put you in delay. It moves your completion date backwards by the amount that you've been affected by. And that is a whole difference between suspending and walking off in one sentence. Do it properly. You've protected yourself. You've gained leverage on the contractor. You're forcing them to either pay you or their program dies. And just to be clear on the limits of section one one, two. This applies to non-payment and only non-payment. If you have an issue with no access, no information, a change sequence. A contractor who doesn't communicate or answer emails. None of that gives you a statutory right to suspend. You might have contractual remedies or a claim for damages or loss and expense, but you don't have a statutory suspension, right? Route two is contractual termination. Your subcontract almost certainly gives you the right to terminate on stated grounds and typically non-payment.
Jacob Austin 00:08:35 That comes after a notice insolvency of the contractor suspension. As the main contract works for an extended period, and sometimes prolonged suspension of your own works for reasons outside of your control. The grounds are the easy part. It either ticks one of those boxes or it doesn't. The machinery of the contract is where you can come unstuck. There are stages to the process that can be tricky, and it starts with serving a notice specifying the default. The default has to continue for a stated number of days, and that stated period can vary depending on the grounds. After that period is elapsed. Then and only then can you serve a further notice. Terminating your subcontract. And often the second notice has to be served within a limited window after the first period expires, and if you miss that window in some forms, you have to start again. Clause numbers and periods vary between forms and also between editions. And then of course, that's before the main contractor has got his fingers into it and changed everything in his schedule of amendments.
Jacob Austin 00:09:46 So I'm not going to quote you a clause number. What I will tell you to do is go and find those provisions before you need them. And as an exercise, write the sequence on one side of A4. If you can understand and follow the logic of it, you're halfway there already. But here's the trap. And this is why I say you're better off putting this in the hands of a good solicitor. This remedy can turn into an actual disaster if you start to terminate under a clause and get the procedure wrong. You effectively haven't terminated. You've just walked off. A defective contractual termination can be a repudiating breach, and that is colossally expensive. It means the party who is in the right five minutes ago is now the party in breach. Route three is the common law route and that is accepting a repudiation. This is one that people talk about a lot and understand very little of. The idea is that if the other side commits a breach that is so serious that it goes to the root of the contract, that you can treat the contract as if it's ended and claim damages.
Jacob Austin 00:10:54 For that to happen, the breach has to be repudiated, and then you have to accept it. And the question that everyone asks is not paying me a repudiate every breach. And the answer is usually no. You need to hear and understand that clearly, because a lot of people believe it's opposite to that. And that is because late payment is its own general breach. There are damages and entitlements to interest and contractual measures that you can deploy, rather than you tearing up the contract altogether. To illustrate the point, a couple of cases one known as Dick roll back in 1971, a series of late payments that averaged around about eight days was held not to be repudiated in valueless against Januzaj in the Court of Appeal in 2014. Again, Non-payment was held to be a breach, but only a late payment breach and not repudiation. But it can get there in Allen Old Associates against Rick Pollard Associates in the Court of Appeal in 2008. The payment failures were described as substantial, persistent and cynical. Not one payment had been made.
Jacob Austin 00:12:11 On time, delays ran from one month to nine months and more than half were over four months late. But adding to that, there was a background of complaints and broken promises. Taking all of that into consideration. The court held that the conduct was repudiated, and the innocent party was entitled to bring the contract to an end. So the line isn't drawn at whether you've been paid late. And if we're talking average payments being 7 to 10 days late. The court's not going to back you on that, because there's a consistent pattern of behavior looked at as a whole with significant periods, it starts to paint a picture that they're not performing well. They're not suddenly going to start performing well. One month late is a breach. 12 months of your company being used as a bank with multiple promises made and being broken, and payments months and months late. That pattern looks like something else. If you've got that significant a breach and a clear, long standing pattern of it, then you have a decision to make because you can accept that behavior, reaffirm the contract positions, carry on and claim damages, or you can accept that there's been a repudiation breach and end the contract.
Jacob Austin 00:13:29 But what you can't do is do both of those things. The other thing that has to happen is the acceptance has to be communicated clearly. Sending your lads home a few days after a payment date has been missed is no way to communicate anything. What you need is a letter that says what preacher you're relying upon. That you accept it as repudiate and that the subcontract is at an end. This is an absolute minefield. Do not do this without proper legal advice. This is something that the legal profession is great at. There's no clear deadline. There's no words describing a mechanism that you're triggering with a particular action. This is a common law entitlement, and the criteria for it are as gray as an afternoon sky in February. If you're wrong about whether the breach was repudiated by you are deemed to be at fault and all of the consequences of that improper suspension, improper termination, they all get laid at your door. So, as I say, this is one to take legal advice on. Your solicitor will probably tell you not to touch it with a barge pole, and rightly so.
Jacob Austin 00:14:38 Unless, of course, there is some real clear evidence that you can rely on. That brings us on to the fourth and final route, which, to be clear, isn't a route at all. This is just leaving. Let's be really clear. If you stop work without a statutory right or without following a contractual procedure that has been properly triggered, then you're abandoning the works, which is a repudiate breach by you. The contractor can then accept that breach, terminate your contract, bring somebody else in and claim the difference from your account, recover it from you as a debt, or take you to court for it. And it's really important that you know the damages are not capped by anything set out in your contract, though the additional cost of completing your works, which are on short notice, as we know, is always going to be at a premium plus any delay consequences that flow from that. It's exactly the situation that we discussed earlier. There's a slower version of the same mistake as well, which would be to not leave altogether but say pull half of your labour away from the site, reducing down to say, two men and letting the site drift.
Jacob Austin 00:15:52 That is not some clever middle path, something that you pat yourself on the back for, because your subcontract will contain an obligation to proceed with the works regularly and diligently. All words to that effect and going slow creates a breach of that condition, whilst giving you none of the protection of a proper suspension. Now quickly, five ways you can get caught out whilst suspending the works. Firstly, it would be treating suspension and just walking off site as the same decision. They absolutely aren't. They completely different in law and there are different consequences. Suspension keeps the contract alive. It moves your dates, it protects you if you follow the process properly. Walking off site can end your contract. If the contractor is minded to do that and it costs you money, probably the money that you've got outstanding and more than likely a good deal on top. Number two is suspending against a sum that isn't due. If a valid pay less notice has been served on time and they pay what? That said, you haven't got a suspension, right? However unfair the pay less notice might seem, they followed the process.
Jacob Austin 00:17:01 In that situation, your remedy is to challenge the valuation, not to stop work. Three suspending on one job because of money on another. We'll cover this properly in another episode on cross contract setup. This is an easy way to connect two contracts that are otherwise separate, and it hands the contractor a valid argument that he wouldn't already have for taking things with you. If you do leave and you've done it properly, you still need to be careful about what goes on the lorry. Depending on the subcontract conditions, you're working under unfixed materials that have been paid for and sometimes even unfixed materials that have been delivered to site have already vested in the contractor or the employer loading out material that isn't yours anymore and taking it off site is going to create yourself a separate problem on top of the one you already have, and it's going to change the tone and add to the dispute in a way that you really don't want to go there. It's not going to help. Five. Doing it on a Friday afternoon with no paperwork.
Jacob Austin 00:18:06 If your position is good, the paperwork makes your case unanswerable. If your position is weak, the paperwork is what stops you making it worse. But at no point is a phone call a substitute for that paperwork? Your contract tells you where to issue notices. It tells you how to issue notices. You need to follow that notice procedure or you haven't issued a notice. Picking the phone up and saying I'm pulling my lads off site is not a notice. So what does a contractor say when a notice lands if you serve a suspension notice, you absolutely will get a reaction. They may try and tell you that your application was invalid anyway. This is probably a good hunting ground for a contractor and sometimes it's right. This is why you check the notices. You check your application before you serve your suspension notice. Not afterwards. If your application was late or it went to the wrong person. The wrong address. Find that out on day one in your own office. Not when you're in the middle of a battle.
Jacob Austin 00:19:10 If it was valid, that objection goes away as quickly as it's alleged. If you can set out the dates, if you can demonstrate that your application has been well put together, then there's no argument. Another is a contractor saying suspend and will terminate for failing to proceed. This one can be frightening, but the law protects you against this. If you followed the procedure properly, a lawful suspension under section 112 of the Construction Act is exercising a statutory right. It's not a default. It's not a failure to proceed regularly and diligently, and a termination that the contractor puts you away because you've exercised this right is on the thinnest ice going. It can be right, but only if you have suspended unlawfully. That means the notice, the grounds, the seven day period. These have all got to be carried out correctly to the letter because these details matter. And that's why I'm suggesting if you don't feel 100% confident to get some advice on it, final one I'll throw in the mix. Follow this suspension through and you'll never work for us again.
Jacob Austin 00:20:23 Sometimes that's a bluff and sometimes it isn't, and I'm not going to pretend otherwise. But what I would say is this a client who only continues to work with you on the condition that they can pay you as late as they want and you'll never enforce your payment rights. That's just not a client you want to work for. It's barely a client. It's someone that you're providing some overdraft facility to. Some free job funding, and it's costing you in interest. It's costing you in lost opportunity of paying for materials early and getting a discount of investing in another project to make yourself more money, or anything else you could do with the cash. Now let's go back to that scenario that we played with at the beginning of the episode. If you were going to suspend performance, this is what you would want to do. Day one you want to establish the facts. Open your files. Demonstrate to yourself what the notified sum was. What did you apply for when? What came back as the payment notice? What was the final date for payment and you want to check that no pay less notice has been given.
Jacob Austin 00:21:30 If you can establish all of the facts around that, you're in a strong position and you should be able to suspend without too much worry. Next, on the same day, serve the notice of intention to suspend. Do that in writing. Served the way the subcontractor tells you to serve notices. Within that, you need to state the sum that is owed the final date for payment that is now elapsed. The absence of a pay less notice, and that you intend to suspend performance of your obligations under section 112 of the Construction Act. If the Folsom is not paid within seven days, tell them also what you intend to suspend. Is it the full scope of works or are you going to suspend part of it? That's up to you to determine. Send a copy of that to whoever actually controls the money in that business, not just the site. Cuz if there's a friendly contract manager that will be on your side, send them a copy to get the politics within the contractor working on your behalf. Nobody will want to lose program time.
Jacob Austin 00:22:35 The right people will put pressure on the finance team on the SHS to get the money moving and stop the job from being delayed. Then, between day two and day seven, the part that people often get wrong is that you just need to keep on working. You don't stop whatsoever during the notice period and you don't make more threats. In the meantime, you carry on. You let that written notice do the work. In my experience, that notice gets paid more often than it gets ignored because it lands on the desk of somebody senior. It's a notice, a formal document, not just a complaint. It's got real power to it. But for the purposes of this example, we're going to assume it doesn't. On day eight, you suspend decide what you are suspending. Tell the contractor what you're suspending. In a grand works package, you might suspend all your productive work, but keep your fencing, your temporary works, maybe some pumps clearing out water in place, because leaving a hole unattended might create a liability that creates a health and safety problem.
Jacob Austin 00:23:42 Think carefully about it. Right to confirm what has been suspended from when and start recording your costs from that morning. Day nine. Day ten. Day 21. Whatever. Whenever they pay your right to suspend ends and you go back to site, then you follow up to confirm the rest of it. This is the bit that people forget about. This is when you need to establish what your costs were of mobilizing, free mobilizing. And if you left some equipment on site that you needed to continue hiring the costs of that too. These are the reasonable costs of suspension. You also need to establish the adjustment to the completion date that covers the suspension period, and however long in time that it took to properly get going again. As we touched on last week, you've also got the entitlement to interest on the money that was paid late, and there you followed the process all the way through. Compare it to the alternative in this scenario of being paid. You've recovered your costs. Your program has been protected.
Jacob Austin 00:24:47 So the delay claim has nowhere to go and you're still on the job. Now, the honest bit suspension can sometimes sour the relationship. Some contractors may not invite you back. That is a commercial decision that only you can make, but make it as a proper decision, weighed against the genuine cost of continuing to fund the job for months, rather than a knee jerk reaction at seven in the morning when you're irate because you haven't been paid. And remember as well, phone calls and good, effective communication can stave off that issue. If you make a sympathetic phone call, you're almost apologetic that you're withdrawing your labor from sight, but you can't afford to stay there any longer. You really don't want to do this, but you can't carry on without being paid. The way you deliver that message is important. If you just fire in a letter aggressively, that's how you ruin the relationship. Manage the perception and you maintain the relationship. So remember the lessons from today. Being owed money, even a lot of money doesn't by itself entitle you to walk off a site.
Jacob Austin 00:25:58 If you want to do that, to protect yourself. Follow the notice procedure either from your subcontract or from the Construction Act. You have to give seven clear days notice and your Re mobilisation and delay costs, plus the time that you've lost are protected when you've got to follow the process properly. Defective contractual termination can itself be a repudiation. Make sure you understand the sequence and if you can't trust yourself to do it, get some proper advice and I genuinely hope that helps. My mission with this podcast is to help the million SME contractors working out there in our industry. If you've taken some value away from today's show, then I really need your help to share the show and pass that value on 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 or reach us on all your favourite socials again at Subcontractors Blueprint. And remember, miss the contract detail and the commercial risk for us on you.
Jacob Austin 00:27:13 Thanks all. I've been Jacob Austin and you've been awesome.
