Thursday, September 9, 2010

Dream the impossible dream - manageing the unmanegable

Getting your systems and processes right is important, but........

Don't sign anything 'til you've calculated the risk.

Have you signed up to this smoking gun in a contract recently?

1) The managing contractor may extend your completion date for any reason;

2) Delay by the managing contractor in giving access is not a breach of the subcontract and you acknowledge that this is likely to happen;

3) You may claim extensions of time (but you must meet the strict notice provisions to be entitled to an eot);

4) You are not entitled to claim the cost of delays for any reason;

5) Extensions of time are limited to extensions of time granted to the head contractor;

6) You are liable for any payment (including delay costs) paid to another contractor by the managing contractor, whether the managing contractor is legally or contractually obliged to pay or not. (ie., at the whim of the managing contractor); and finally.....

wait for it.........

7)  Damages for late completion up to $180,000 per day (that's $1.3 million per week and $5.5 million per month).

If so, you have signed up to pay the cost of something that is mostly or entirely outside your ability to manage or control.  Program delays and disruption occur for all kinds of reasons.  The most common are design changes; late design / documentation; late completion of activities or areas that you are dependent on.  Even if you manage your contract perfectly,  you will still be heavily penalised for the mistakes, delays and inefficiencies of the many other people and businesses you depend on. 

Do you have the ability to build this unknown, unquantifiable and unmanageable risk into your contract price?  What is it worth to assume this risk?  10 - 20% of the contract value? More?

If you can not price or manage a serious risk, you are well advised to consider whether you should sign up to such terms or take a cold bath and look for a better contract.

Thursday, September 2, 2010

Identifying change - Easy to Say, but you have to do it!

Most subcontracts commonly in use place the responsibility to identify change (variations and program) on the subcontractor.  Typically the requirement is:

If you identify any change as a result of an instruction (or anything else) you MUST notify the managing contractor within 5 days of the instruction (or becoming aware of the change) of the change, whether it is a variation, your estimate of the cost (or time, in the case of an eot).

You MUST NOT start work on the instruction or change until you have written approval from the managing contractor of your claim for a variation or eot.

If you do not fulfill these requirements WITHIN THE TIME FOR NOTICES you will lose your entitlements.  Our legal advice is that these clauses will stand up.

If you are operating under these or similar conditions, you absolutely must have processes in place to capture issues at site and in the office and to quickly engage a watertight process to ensure that you meet your obligations, before doing any work.  The process will pass through at least 5 people on your organisation (or 5 processes for you, if you are small).

There is collaborative technology to help facilitate this process.  Fro example a Google (or similar) shared spreadsheet could help speed the process of estimating and approval.

Here is a simple example of a free collaborative spreadsheet form that you can use to manage this process:

It is much more difficult to gather the first information in a pressure-cooker construction environment, so that costly items don't "fall between the cracks" and become costly mistakes.

Thepowertool facilitates gathering of site and office data and more importantly creating instant action tasks for anyone in your organisation, as well as streamlining your payment claim process.

You can not operate successfully in today's environment with outdated systems.

If you want more advice on the above collaborative spreadsheet, contact me.