Subcontractors - Manage Your Debtors

Understand the Correct Process for Handling Variations Under Your Contract - If you are working for a builder or head contractor make sure you know how a variation may be requested, accepted and approved. Find out who is authorised to issue instructions to you, who is responsible for agreeing to any variations you request due to latent conditions or other unexpected costs and who is responsible for paying for the variations. Make sure you comply with any time frames and other strict requirements under your contract and don't take any short cuts.

1. Know What Paperwork Must be Completed - If the other party doesn't have anything, you need a document of your own. Make sure your document with a homeowner complies with your legal obligations under the Domestic Building Contracts Act 2000.(Contact Ledger Guard for a practical 1 page Variation to Original Quote/Contract Form).
2. Nothing Verbal, Everything in Writing - Insist that the customer/ builder/head contractor put their request for additional work or changes to the original quote/contract in writing. Despite a good relationship at the start of the project, verbal instructions can be forgotten or denied when it comes to payment time and cashflow is tight. Under the QBSA Act your builder or head contractor is legally required to give you a direction in writing within 3 days of your request so don't feel pressured to start the variation work without instructions in writing. Take a note of any conversations in regard to a variation whether requested by you or the other party so you can verify what was said, by whom, on what date and at what time. You can't rely on your word against the other party.
3. Claim for any Variation Work in the month it is completed or within the timeframe stipulated in your contract. Don't wait until the end of the job or your variation claim may not be valid. Dealing with variations promptly will also reduce the possibility of forgetting any details of the work and what needs to be claimed.
4. Keep Copies of Everything and make sure your paperwork and site records are accurate and up to date. It pays to be more thorough than you think you need to be in case a dispute goes to arbitration or you need to take legal action.

   Courtesy of Ledger Guard - Ledger Guard is a licensed debt collection agency specialising in recovering business to business debt.

   Excellent advice - but sometimes it is not so simple to achieve. Thepowertool takes the pain out of payment and keeps track of site issues with no disruption to your work.

What do statistics tell us?

The BCIPA (Qld) has just released its 2009 - 2010 adjudication statistics.  They make interesting reading, but what do they mean?

68% of claimants are subcontractors and a whopping 85% of respondents are contractors or head contractors.

Contractors, even the biggest, are just are not getting it.  The Payments Act is designed to improve payment processes and reduce disputes.  It is high time the industry took its focus off disputes and made a real attempt to "get it right".

16% of Claimants are contractors, but only 5% of respondents are clients.  It indicates that most disputes are inside the industry - contractor to contractor.

The average claim was $253,000 and the average decision was $232,000, indicating that, on average, claims were over 90% successful.  This is an amazing statistic and indicates very clearly that contractors are failing badly with contract and payment management processes.  The industry must engage properly with the Act as a business-as-usual practice if these statistics are to improve.

Consultants (11%) and suppliers (5%) are starting to use the Act to collect disputed payments.  Suppliers are still largely unaware of their rights under the Act and are mostly tied to accounting systems that are not conducive to making the Act part of their business practice.

999 applications were lodged in the year, a rise of around 100 over the previous year, indicating more awareness and a willingness to use the Act to recover debt.  The total value of claims was $224 million, consistent with last year.

The largest claim was double the previous year, at $32.7 million.

Small claims did well, with 82.4% of claims up to $5,000 awarded in full.  From experience, we would say this is largely due to very poor contract / payment management on the part of contractors.

Claims over $500,000 were less successful with 9.4% paid in full, indicating that respondents are much more prepared to fight off a large claim.

You can significantly improve your chance of succeeding by using proper , complying processes for contract and payment management.  Thepowertool empowers everyone in your organisation to contribute to securing your entitlement to payment.

Your production (site) workers are your eyes and ears

Did anyone see Domino Pizza ceo, Don Meij, on Undercover Boss, Australia? If not, it's worth re-capping. Meij demonstrated a highly effective, but not always used, management strategy. He understands that the role of management is to support people at the workface, the ONLY people in the company actually generating revenue and interacting with customers all the time. By empowering and supporting the people on the ground, he knows that the company will thrive through their commitment and skill.

Many of us think of management as a pyramid, with the ceo at the top, being supported by the workers. It's an easy trap to fall into from the top floor of head office. Good management is better seen as an inverted pyramid, with the ceo at the bottom, supporting production teams with systems and resources to do their job efficiently and effectively.

Construction workers (trades and labour) can be cast in a very one-dimensional role,  performing electrical, plumbing, tiling, carpentry etc. It is a risky view for a business. Your workers at site are your eyes and ears. They know exactly what is happening and where your money is going. Management can ignore the richest source of job intelligence and attempt to stay informed by other means that are costly and ineffective. Trickle-up information flows are too slow in modern contracting environments. You can lose a payment entitlement in a week.  The alternative is to support and empower site workers to gather and report site intelligence as it happens.

Production workers can be empowered by instructing them on, and giving them responsibility for, reporting on contract management issues as they arise. This includes delays, variations, defects, coordination, WH&S, deliveries and a host of other issues.

With onerous time frames imposed by modern subcontracts, subcontractors can not afford to lose half a day waiting for business information from site. Providing for production workers to deliver "task-ready" advice from site is simple, efficient and cost-effective using tools like thepowertool mobile Site Diary.

What's happening?

Been away from the desk for a bit, but good and interesting things keep happening.

Last week we were delighted that thepowertool was granted an Australian Innovation Patent over its software systems and processes.  We knew we were special, but it's nice to have it confirmed.  Also comforting to have our software process protected, especially our new mobile Site Diary app, which is now more valuable than ever after the "Chase v Hamo"case in NSW reinforced the need to be right on top of your payment process.

iPhone and iPad applications are exploding in the construction industry as people start to leverage the benefits of working at site.  Check out the very interesting discussion on iPad applications at the Linkedin Group Linking Construction.  (You may have to register to see the discussion, but its worth it).  Here's my 2 cents worth - "We need to consider what data must be gathered at, and disseminated to, the field and how to effectively interface the gathered intelligence with management and technical systems.  There is a temptation to adopt technology just because it can.....  After 30 years in practice, we know that one of the primary inhibitors to preserving contractual entitlement, and subsequent payment, is the failure to gather information and intelligence (directions, variations, delay and disruption, acceptance of sub-bases, deliveries etc.,) as it occurs and pass the data in a timely manner to management for appropriate action.  It is especially important with tight contractual notice provisions.  Thepowertool.com.au iPhone app (patented) allows site personnel to record site data by note, voice, photo, mark up or sketch and pass it to management for action, with due dates.  It feeds the data into a payment claim system that complies with Australian, New Zealand and some Asian security of payment legislation, thus preserving contractual entitlement".  Thepowertool is driving new thinking about the way site intelligence is gathered and used to leverage your contract management effectiveness and protect your contractual entitlements.

One last thing - a recent NSW Supreme Court case has reinforced the importance of making sure that your payment process is spot-on with timings and complying with the Act.  Essentially, from now on, if you want the protection of the Payments Act you must get the process right.  An adjudicator can't help you if you get it wrong.  Read more about this case here >>;

To help out in our local area we have started the Gold Coast Sub-contractors Meetup Group. This is a NEW informal meeting and discussion group for the construction industry on the Gold Coast to discuss business trends in the industry.

The objective of this group is to discuss and discover the best practices being used to run a construction business. Whats out there, whats good and whats not.  if you would like to join the group, please feel free to register on Facebook to get an invitation.  The first meetup is at the Parkwood Tavern on Tuesday 19th October 2010 at 4:30 pm.

You MUST get the process right in order to protect your entitlement

A recent Supreme Court case in NSW (Chase Oyster Bar (Chase) v Hamo Industries (Hamo) [2010] NSWCA 1) has made it clear that parties to an adjudication must get the payment process right if they are to take advantage of the protection that Security of Payments Acts in Australia offer contractors and subcontractors.  The Courts can now overturn an adjudication decision if the timings for payment claims, payment schedules, notices, applications and responses are not correct. 

Re-starting the process is costly, time-consuming and uncertain.  It always happens at the worst possible time, when you need it most.  Thepowertool can help you to manage your payment process and make sure you do not miss your timings.

If you would like a more detailed examination of this case you can read it here >>;

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.