Disasters
Most of the subbie’s misfortunes
arise from the same fundamental
origins: lack of commercial/contractual awareness; recurring “contractual”
problems and pitfalls; failure to operate good "contractual
housekeeping". In this new
bi-monthly series, I shall try to
assist the subbie to identify
and avoid the pitfalls, and overcome the problems which are met every day in
the “real world”. There are streetwise measures which the subbie can take to
protect his contractual and commercial position. These precautions must start
at the very outset.
Invitation to tender (the enquiry)
The subbie should subject
every enquiry to a routine analysis,
identifying the key technical,
commercial and contractual elements and risks. This is best done by a standard
check list, to include such matters as : title and location of project, nature
of installation and approximate tender value, identity of the client and his professional
team, also main contractor (where
known), credit ratings of both client and main contractor, design
responsibilities, likely programme periods and dates, subcontract conditions, payment terms and arrangements, discounts,
retentions, brief details of any onerous clauses and/or special amendments to
standard forms, performance bonds or warranties, rate of liquidated damages and
other key information.
In this way, the subbie is
"identifying the risk". This "risk" may be such as to justify
declining the enquiry. Or it may be necessary to qualify the offer . If that is not possible (ie
"prohibited" by the terms of the enquiry), then some attempt can be
made to "price the risk". If
successful in the tender, the risk must be managed by appropriate staffing and
site records. The greater the risk, the
greater should be the subbie’s protection measures. One thing should never be done, and that is - to ignore the risk.
That is the road to bankruptcy !
Tender qualifications
Qualifications can be of value in
pre-award negotiations with the client and/or main contractor and in trying to
mitigate the onerous terms and conditions identified in the enquiry
documents. If a tenderer’s price is
attractive (ie “low enough”), the client
or builder will often be reluctant to reject the offer outright on the basis of
its attached qualifications. However,
where the enquiry expressly forbids qualifications, there is a risk of a
qualified tender being ruled out of consideration. Beware giving “budget
prices” etc. If you do not wish to be
bound by these prices, it is prudent to state this clearly in your offer. Otherwise, you run the risk of being held to
your “estimate” or “budget price”.
Such terms usually occur in the client's or main contractor's own
"non-standard" documents but
can also arise as amendments to standard forms.
Be watchful for such potential problems
as :
·
Extended payment
periods
·
Extended “fixed
price” periods
·
“Pay when and if certified” or other such variants
·
Payment for unfixed
materials, on and off site
·
Discount expressed as
“Main contractor’s discount” instead of “cash discount”
·
Excessive retention
percentages and/or periods.
·
Onerous "Set-off
Clauses"
·
Performance bonds and
warranties
·
Acceleration clauses
without entitlement to reimbursement.
·
Entitlements
restricted to the “benefits under the main contract”
·
Main contractor’s
right to vary the sub-contract programme and/or period
·
Suicide phrases like
“To suit our programme”.
·
Unworkable and/or
excessive “design” and/or “co-ordination”
responsibilities
·
Excessive
“protection” clauses
·
Responsibility for
previous works by other trades
·
Client’s “milestone
dates” for access and fit outs
·
Excessive rate of
Liquidated Damages
The time to identify such onerous terms
is when the subbie first examines the enquiry, and uses his check list. Later on is too late ! Having identified
these onerous terms, the subbie is then fully aware of the risks and can decide
his approach. If the sub-contract
conditions are really bad, then the sensible move might be to “walk away” from
the enquiry. After all, who wants to work for a client or builder whose
conditions are a recipe for bankruptcy?
At the very least, the subbie is approaching the job in full awareness, and can conduct himself
accordingly.
If the other party responds to the
subbie’s tender with an "acceptance" which introduces further terms, and/or
amends those on which the tender was presented, then this is not a true
acceptance but is really a "counter offer". A typical example is the builder’s official order, on the back of
which is a mass of small print which the subbie has never previously seen. The subbie should be very careful to avoid unintentionally accepting this counter-offer by conduct (eg
by making a start on site).
In my next article, I shall highlight the
pitfalls to avoid when the subbie receives a letter of intent or order from the
other party. In the meantime, stay
“streetwise”.
John Russell
Contracts and
Training Consultant
Cheshire CW4 7DP
Tel: 07770 986444
Email: swsubbie@globalnet.co.uk
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