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.

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.

Getting the Payment Process Right and adding time is a Win/Win deal

Major contractors are struggling with the concept and the process of security of payment acts, including the Queensland BCIPA Act 2004.  The problem is they see the process as a precursor to dispute, rather than an effective, cost and time-saving process.  Fear takes over.  As a result, to circumvent the Act, they have come up with a non-compliant (but probably not illegal) process that puts contractors, subcontractors and quantity surveyors under enormous pressure to prepare and evaluate payment claims in 5 working days.  A complying process would allow up to 5 weeks.

Payment claim process for large contracts

View more presentations from MyCorporateCoach.

Adding thepowertool to your payment process not only turbocharges your business processes, but protects your valuable entitlements with the mobile Site Diary (pat. applied).

Variations - snakes in the woodpile

90% of variations do not come packaged with the label, "We would like to make a change; please tell us how much you will charge." Variations mostly arrive as instructions to do something, or in the form of changed drawings or specifications. Upstream clients (we will call them C) rarely take full responsibility for identifying and managing the cost of change before it happens. This is partly because it takes extra resources and good processes to do so and partly because, if they do not tell you, you might just miss it and they avoid the cost altogether.

The responsibility and liability is squarely on your shoulders to manage variations, whether you generated the change or not.

Strict contract conditions can make it very hard to get paid for variations. Here is a good example of a popular real-life subcontract:

1) The head contractor can issue drawings, instructions or directions that you must comply with within the time instructed.
2) If an instruction (including a direction, drawing or spec) involves a variation not identified by C, you MUST:

• Give written notice within 5 days of receiving the instruction, and
• Wait for a written, clearly identified, variation notice BEFORE starting the work.

If you do not do these things, you are not entitled to claim the variation.

Do you have procedures in place to identify variations from instructions, drawings and spec changes and notify C of a variation within 5 days of receiving an instruction?
Do you have a process to stop your site staff from implementing any instruction until you are satisfied that you have received a written variation notice from C?

What do you do if the instruction will hold up your work while you are waiting for a variation notice?


Do you identify with this scenario? -

The Engineer gives your supervisor an oral instruction on Wednesday (with a quick sketch) to make some changes to your work as a result of a coordination issue. C's site foreman confirms the instruction and tells you to get on with it, otherwise the program will be delayed. You have a team working in the area and your supervisor does not want to delay the work, so he instructs the tradesmen to prepare for the change. They start work.

1. Your site supervisor, makes a note in his site diary and raises it at his weekly management meeting on Monday.

2. The engineer changes and C issues the amended drawing, under an instruction, the following Monday via the Aconex system, so you get it the same day.
3. Your engineer notes the change and passes it to the drafters for making manufacturing changes. On Wednesday they tell the engineer that there will be variation costs.
4. The engineer mentions at the next coordination meeting (Friday morning) that the instruction might involve a variation.
5. The work is urgent, so the drawings have been passed to the workshop, where the change is underway.
6. Your project manager drafts a variation notice and issues it on Monday.
7. The engineer (and C) are reluctant to issue a variation notice. They say detail design is your responsibility. You will need to demonstrate to them why this is a variation.

You are now at least 5 days past your last date for giving notice of a variation and you have started work on the change before receiving a written variation notice. You have lost your entitlement to claim the variation. By now you are entirely at the mercy of C and the engineer.

It is not realistically possible to maintain your site momentum and meet these extremely tight notice deadlines using normal business communications and business meeting cycles in a construction environment. You must have a system to collect and transfer site intelligence instantly for quick action from the responsible parties.

Systems like thepowertool Site Diary allow you to gather critical time-sensitive information at site with text, voice and marked-up photos, synchronised to the office as a task (with deadlines) for immediate action.

Subcontractors who accept conditions that are difficult to meet must ensure that they have fast, foolproof communications and systems to manage their contractual responsibilities.

A week may be a long time in politics, but is it enough in construction?

Subcontract conditions being used for major projects in Queensland can be extremely difficult to comply with; and the consequences of failure to meet them are dire.

Subcontractors must give the main contractor written notice of a delay to the construction program, and its effect, within 5 days of the start of the delay, followed by weekly updates. This notice is a strict condition precedent to being granted an extension of time. Liquidated damages for late completion are high, up to $60,000 per DAY. How many subcontractors could realistically sustain NO payment for delays and extensions of time, for any reason, with severe penalties for delay, at the whim of the head contractor, laid at their door?

Do you identify with this scenario? -
Something happens on site on Wednesday to cause a delay to your work. Perhaps a critical work area is not ready to commence or some other cause of delay beyond your control -
1) The tradesman mentions it to the site supervisor, who takes a note in his site diary.
2) Your site supervisor (SS) makes a note in his diary and talks to the head contractor's site supervisor about the problem, who promises to get back to him, but redirects your team to another work area for the moment. (SS notes the change in his diary).
3) SS raises it at his weekly management meeting on Monday.
4) After the meeting your project manager asks your (contract) programmer to check the delay when he is doing his weekly progress update, which he does on a Friday.
5) Programmer looks at the issue after his weekly status. He emails the PM Monday to tell him that the effect on your critical path is 3 days.
6) You are now 3 days past your last date for giving notice of delay and you have lost your entitlement to claim an EOT. You must either accelerate the job at your own cost or face $180,000 in liquidated damages, plus the disruption cost of moving a team and re-programming your work.

It is not possible in practice to meet these extremely tight notice deadlines using normal business communications and business meeting cycles in a construction environment. You must have a system to collect and transfer site intelligence instantly for quick action from the responsible parties.

Systems like thepowertool Site Diary allow you to gather critical time-sensitive information at site with text, voice and marked-up photos, synchronised to the office as a task (with deadlines) for immediate action.

Subcontractors who accept conditions that are difficult to meet must ensure that they have fast, foolproof communications and systems to manage their contractual responsibilities.

Who is responsible for your payment?

Security of payment acts give you an entitlement to payment, but you must protect your entitlement as contracts move through the construction phase with the inevitable variations and other contractual claims. Notices and time bars must be strictly adhered to and you must record everything that might affect your costs on site.

Getting paid is a team effort. Here is the list of staff who need to be involved in your payment processes:

Site supervisors and site operatives - These are the people "on the ground". They are the most likely to see and experience day-to-day activity that needs recording, including oral instructions for extra work, access issues, delay and disruption, completed work, defects, workplace health & safety, environmental protection and industrial relations. They need to be given the authority and means to collect site intelligence as things happen;

Manufacturing staff are well placed to identify delays and changes to their workflow due to delays and document changes;

Contract managers must be aware of time constraints and other contractual requirements, check incoming documents and instructions for completeness, accuracy and change and convert gathered "intelligence" into contract processes;

Accounts departments must have a clear understanding of contract terminology and procedures and how they interface with corporate accounting and be alert to late payment and the recovery procedures under security of payments acts.

Management must ensure that all relevant information is gathered and available at all times to allow them to quickly negotiate differences and act quickly to collect overdue payments.

thepowertool.com.au facilitates the division of work, the payment process under security of payment legislation and the collection of site data with its unique mobile applications that synchronise site issues, complete with text, photos, drawings and recorded data, direct to the job account.

Claiming Retention under security of payment

The Queensland BCIPA (Payments Act) provides for including cash retention in a payment claim and damages that arise as a result of suspending work under the contract [section 17(3)]. This means that a retention amount can be included in an adjudication application. Other security of payment acts are similar. This does not extends to releasing bank guarantees. Security of payment acts can not be used to force the release of securities that are secured by bank guarantees and similar financial instruments.

In Queensland, claimants have strong protection under the Qld Building Services Act (QBSA) from respondents wrongly withholding retention (or the release of guarantees), under section 67J, that requires 28 days notice before deducting a retention amount. If notice has not been given, the "set-off" would not be allowed in an adjudication. Of course you must make a claim under 67J to an adjudicator. an adjudicator is not expected to, and will not, go hunting to find what you are entitled to.

The AIQS Dispute Resolution Centre can advise you in relation to your entitlements under security of payment. Call us today if you need advice.

Thepowertool protects your entitlement to payment by properly calculating retention amounts when they are due. Check thepowertool today.