Five top tips for getting paid what you are entitled to
Payment problems are rife in the construction industry. Trevor Drury provides some key pointers to help contractors get paid what they are due.
“A fair day’s pay for a fair days’ work.” It’s a common saying, but it does not always apply in construction. Particularly for SMEs, there are many trip hazards along the way, although larger main contractors also suffer from payment issues. However, there are some simple practical things to do to increase your chance or getting paid and being paid what you are entitled to.
1. Ensure you have a signed contract in place
First things first, if you are offering to undertake construction work for payment, you need a contract which sets out the terms under which the contract will be performed and the rights and obligations of the parties. That contract may be as a contractor working for an employer (using JCT terminology) or as a specialist trade contractor working for a main contractor.
It is surprising how many disputes do not have a formal signed contract in place. It may be the case that there has been an exchange of suggested contracts which the parties never got around to agreeing before work started, often referred to as the “battle of the forms”, or it was an exchange of emails or an oral agreement that was not properly committed to writing.
It is always better to have the contract agreed and signed before you start work. Avoid letters of intent if at all possible as these are fraught with problems. Seek appropriate legal advice as well and the earlier the better.
Obviously one of the major areas for dispute concerns payment. Even if you do not have a formal contact in place, the Housing, Grants, Construction & Regeneration Act 1996 as amended (“Construction Act”) applies to construction contracts. Even oral contracts are included and the Scheme for Construction Contracts is implied into the contract if it does not comply with the Construction Act.
This provides considerable protection for those downstream in the supply chain by being able to refer a payment dispute for a technical breach of the notice provisions, such as a failure to issue a payment notice or payless notice. It also allows disputes to be referred concerning the detail of the valuation or final account – the “true value” – to adjudication. The use of adjudication can provide a relatively fast, albeit temporarily binding, decision and restoration of cashflow.
2. Claim for the instructed variations with appropriate detailed build-up, cross referred to contract rates and records
It may seem obvious, but contractors and subcontractors need to ensure that their works are properly valued and not undervalued. Where this frequently occurs is when changes or variations have taken place. First, ensure that you have received a written instruction for the variation that has been issued. If you are given a verbal instruction, make sure that you issue a written confirmation of the verbal instruction.
“It is surprising how many disputes do not have a formal signed contract in place. It may be the case that there has been an exchange of suggested contracts which the parties never got around to agreeing before work started, or it was an exchange of emails or an oral agreement.”
The work then needs to be valued. The contract will usually set out the valuation rules, initially using the contract rates or rates analogous to them as the basis for any additional works. Where the work is not similar and new rates need to be calculated, records of labour, plant and materials need to be kept and ideally those records should be signed for by the client’s representative as a true record of the resources used, so the factual information is not an issue.
Where disputes or differences frequently occur is where there are insufficient or inadequate records to support the amount claimed. So, ensure you have quality contemporaneous records.
3. Make sure you have issued the correct notices on time
Instructed variations can cause a delay to the project. This may be as a consequence of the volume of the additional work on one item or the compounding effect of many variations. The timing of the varied work, in relation to other planned activities, and whether the instruction was issued late, can also cause delay and disruption which adversely impacts the critical path and delays the contract completion date.
Most forms of construction contract include provisions requiring the contractor to issue a notice of delay when reasonably apparent that there is going to be delay to the contract completion date or an early warning notice and notification of a compensation event or similar. It is important to issue notices within the prescribed timetable required by the particular form of contract.
In some cases, not complying can be fatal to any claim for an extension of time and run the risk of having liquidated damages deducted. Always follow the requirements of the contract.
4. Put forward your claims for extensions of time and loss and expense, properly calculated with supporting evidence
To demonstrate an entitlement to an extension of time, you will need to provide evidence that the contract completion date has been delayed by one of the relevant events/compensation events stated in the contract.
This will need to be proven by use of time management software systems and may require an expert to produce the delay analysis. However, the ability of the expert to prove an entitlement and be successful in achieving a full extension of time, is largely dependent on the quality of the records available.
Those records need to show which resources were employed or affected, whether additional resources were brought in, whether resources had to be redeployed elsewhere on site and the effect on productivity. Again, the quality of contemporaneous records is key.
Separate from extensions of time, yet often thought of together, are claims for loss and expense.
One of the largest components of loss and expense is usually prolongation costs – time related preliminaries associated with the delay to the project. Separate notices are required to be issued to alert the client of the occurrence and what has caused the loss and expense.
Also, it is necessary to provide supporting evidence to enable the client or its representative to ascertain the loss and expense. Remember that loss and expense must be proven – that you have actually incurred the costs/loss and that it was reasonable to do so. Under certain forms of contract, for example the NEC, the contractor is required to provide quotations for compensation events. This must include an estimate of the additional costs of any delay.
5. Always remember to keep quality records
Records, records and more records are key to all this: claims for instructed variations with appropriate detailed build-up, cross referred to contract rates and records; details of when you issued the correct notices; claims for extensions of time and loss and expense, properly calculated with supporting evidence. Follow the steps above, recording everything accurately and thoroughly – and you should improve your cashflow and profit.
Trevor Drury is managing director of construction consultant Morecraft Drury, a barrister at 12 Old Square Chambers in Lincoln’s Inn and CIOB Bristol Hub chairman