Non-standard contracts – a word of warning for subcontractors.

Keeping your eyes wide open with new contracts.

Last week I went out to visit a new StreetwiseSubbie member with high hopes of expanding his business by working on commercial as well as residential projects.

He was delighted to have already been offered a contract for a new project and was busy planning how it would fit in with his schedule of works, what raw materials were required, who’d be working on the job etc. When I began to ask him about some of the specific terms in the contract, I wish I could say he was aware of them and they’d all been ironed out. You know what’s coming…his eyes were wide shut.

The more questions I asked, the more the blood drained from his face. His excitement was replaced by trepidation. It was a sobering experience and I warned him that not every relationship he formed in the commercial sector would be warm and cosy. On the contrary, many main contractors he might end up working with wouldn’t bat an eyelid at deliberately swindling him for their own benefit.

None of us likes being ripped off but that’s exactly what some of these contracts are designed to do. We’d complain in a supermarket if the bottle of wine we wanted was advertised at £5 but when we got to the till we were charged £10. We know what we’re supposed to be paying so why don’t Specialist Contractors adopt the same mentality when their business is being ripped off by onerous terms?

Not all contracts are the same and, as demonstrated above, onerous terms are waiting to rip off the unwary. You will usually find them lurking in the depths of Contractor’s own “non-standard” documents, but they can also arise as amendments to Standard Form contracts.

These terms are deliberately designed to reduce your entitlements and increase your obligations. They will make your life more difficult, they could end up costing you a substantial amount of money, and in the worst case scenario they may even cost you your business.

The simplest way to put onerous terms into context is to ask yourself this question: “Why, when there are all manner of Standard Form contracts around such as JCT, NEC and MF/1, does anyone need to produce their own terms?” The simple answer is that it isn’t for your benefit!

So, what things should you look out for? Here are a few examples:

• Extended payment periods
• Long notice period before you are allowed to suspend performance
• Pay when certified (unlawful in contracts to which the Construction Act applies)
• Extended fixed price periods
• Non-payment for unfixed materials
• Excessive discount
• Discount not linked to prompt payment
• Excessive retentions and/or prolonged repayment periods
• Onerous set-off and cross contract set-off clauses
• Acceleration without payment
• Vague programme information
• Open ended co-ordination obligations
• Restricted rights of recovery on variations
• Protection of your works
• Client’s milestone dates for access
• Excessive liquidated damages
• Restricted extension of time entitlements
• Restricted loss and expense entitlements
• Delay notice periods made a condition precedent
• Adjudication entitlements restricted or delayed
• Costs of adjudication to be paid by the Sub-Contractor

The best time to find out about onerous provisions is at the enquiry stage even before you have submitted your price. You should always be clear about the terms and conditions you will be working under if your tender is successful.

If you don’t know or don’t have time to find out about terms and conditions you should always qualify your tender. For example you could qualify it by stating: “Our price is based on the assumption that an appropriate JCT Standard Form of Sub-Contract will be used and subject to agreement of all necessary details to enable Articles of Agreement to be completed”

If your tender is successful then you will be invited to enter into a contract or possibly sent an Order or Contract to sign. This is a dangerous time because a contract including any of the onerous provisions outlined above could easily come into being.

The first line of defence lies in recognising onerous terms and conditions in the first place. Whilst you may be tempted to ignore the small print, you may subsequently find that a contract has come into force incorporating onerous terms that have fatal consequences for your business.

You also have to be wary of clauses that are not there, as well as checking the ones that are! For instance, if you are designing the works and the contract is silent about design liability, then you will have a very onerous “fitness for purpose” obligation. This is much worse than it sounds because you are literally guaranteeing your design will satisfy the employer’s needs irrespective of what you knew or didn’t know about his business or industry.

In order not to be caught by onerous provision you must always make it perfectly clear that you are rejecting their onerous terms. Notice I said rejecting their terms, not rejecting their order. Keep your eyes wide open at every stage and, if in doubt, give us a call!

 

Barry Ashmore is MD and co-founder of StreetwiseSubbie.com which provides business solutions for Specialist Contractors throughout the UK. 

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