ADMINISTER YOUR CONTRACT

This is a shout out to the subcontractors who are contracting to undertake work to a head contractor or smaller to mid-tier builders  contracting to the principal. As the title suggests, the purpose of this article is to emphasise the importance of properly administering your contracts.  Yes, it is your contract. You may not have drafted it. You may feel you were not given a choice as to its terms.  However, you signed it and the only person who will administer it to look after your interests, is you. The other party to the contract will administer it for their own benefit.

Many of you will place your hand on your heart and say I do, I do. Well, maybe you do. However, from what this writer has seen over 35 years in the construction industry, the vast majority do not. Many will not have a written contract all. Others will have some poorly scratched out piece nonsense which they set their faith in but many, many more will simply sign off on a document half as thick as a brick and throw it into their filing cabinet or onto the floor on the passenger side of the Ute from where it will only be retrieved to give to their lawyer when all has gone to hell in a handbasket. For many, their idea of contract administration is to carry out the construction work and put in their invoices. That is where they get themselves into trouble. And yes, I mean that! Get themselves into trouble. That said, we understand the commercial pressures which lead to contractors signing contracts almost irrespective of the terms.
 
So, what is meant by “administer the contract”? Simply put, a contract governs the rights and obligations of the parties. It tells them what they must do and when they must do it, in the course of achieving the outcome the contract requires. There are procedures and processes that must be followed within specific time frames and a failure to do so, precisely, can mean substantial losses.

Throughout a contract there will be terms that require certain things to be done at the beginning, throughout performance and at the end of the work. Know them and follow them, no matter how onerous they are. Complaining about how short the time frames are for putting in EOT claims after the contract is signed for example is a waste of your time and energy. You signed it, so follow it. To the letter. That is contract administration.

Some examples to watch for:

EOTs

Delays happen in construction all the time and the causes are many and varied.. Whatever the cause, the delay is real and not only costs you money for extra labour and overheads, it exposes you to liquidated damages. The contract will have procedures by which you can claim extensions of time. Those procedures are often somewhat unreasonable. They may limit the types of delaying events that you are allowed to claim an extension of time for. They almost certainly will specify an obligation to provide written notice within specific time frames to notify the principal or head contractor that you have been delayed and to claim an extension of time. A failure to provide the proper notice with the proper detail and within the specified time frame can result in you losing the right to any extension of time and being forced to pay liquidated damages even if that seems incredibly unjust. For example, a head contractor causes you extensive delay because they have no had other work undertaken which needed to be complete before you could start part of your scope of work. However, because you failed to claim extensions of time within the time frame stipulated by the contract, you lose your right to any extension and still have to pay the head contractor liquidated damages, even though they caused the delay themselves. This may seem incredibly unjust but that is precisely what occurred in the Western Australian case of CMA Assets Pty Ltd –v- John Holland Pty Ltd [2015] WASC 217 where the judge acknowledged that the terms of the contract were harsh, but they applied nonetheless with the result that the head contractor was entitled to liquidated damages from the subcontractor even though the subcontractor had been delayed by the head contractor’s own actions.

Variations

Another area of a contract where administration is critical is in respect to variations. It is common in the pressure cooker environment of actual construction on site that the superintendent or the site supervisor will be pressuring you to carry out work that is clearly outside the scope of work in your contract. Those works are variations for which you are most likely entitled to be paid. Most of you will have faced at some point the aggressive superintendent or supervisor who directs you to do the extra work. They might even make encouraging noises like, don’t worry, we will sort it all out at the end. Some may use the threat of liquidated damages if you delay in carrying out the variations. Whatever the tactic, you will often be forced to perform the work outside your original scope at substantial cost.  Many contracts indeed allow a superintendent or site supervisor to give verbal directions to vary the scope of works and the contractor is compelled to carry out that work even though no amount of additional payment has been quoted, specified or even agreed to.  In those circumstances, you have an obligation to carry out the variation work whether you like it or not. However, there will be procedures under the contract to claim payment for that variation. There are often strict time frames and procedures imposed on them and like the case with EOT’s, if you do not follow those procedures you can lose your right to claim. These procedures can be critically important to get right. The writer has seen subcontractors on large projects bullied by supervisors into undertaking millions of dollars’ worth of variations for which the subcontractors were never paid because even though they did the work, they did not follow the procedures under the contract which were conditions precedent to a variation. Yes, the terms of those contracts were onerous and the smarter play would have been to negotiate better terms at the beginning or even not take the job at all. However, having signed the contracts, the subcontractors in these examples still could have saved their positions had they followed those onerous procedures to the letter. Instead they just did the extra work and did not administer the contract. They focused on the tree in front of them, while the forest around them burnt. (Note: in the case of residential construction work, such procedures are a statutory requirement and the failure to follow them means you can only be paid if you successfully apply to the Tribunal to be paid, which is not common)

Contract administration is critical.  Not just to your profit from the job, but to the survival of your business. Appropriate forms, accurate timing, attention to detail on the administration of your contract will be a greater guarantee of success on the job than sourcing materials or labour at a better price or by getting the work finished more swiftly.

Active Law’s construction team are very experienced in all aspects of construction law including in the drafting, negotiation and administration of contracts, dispute resolution including litigation, arbitration and of course the procedures under the BCIPA. Active Law’s Paul Hick has been involved in the construction industry for over 35 years. He is a senior adjudicator under BCIPA and a very experienced lawyer specialising in construction law.