Mid Tier Construction Contracting Essentials

This article will be particularly relevant for growing contracting businesses who are stepping up into the world of mid tier contracting, as I often see these types of companies make fundamental contract management mistakes with potentially disastrous consequences. These clients typically appear at our firm for help at the 11th hour of an ugly dispute, having previously had little regard for the contents of their Construction Contract, but hoping to rely on it now as their savior.

Common Mistakes

Recommendations

The following recommendations come from both construction industry and legal practice experience and can be adapted to both the management of Head Contracts and Subcontracts alike.

Tip 1 – Ignore the contract at your peril.

The right contract can be both a valuable weapon and a protector. If you’re a growing construction company stepping up into the mid tier market, be aware that your contract management game needs to change. Effective contract administration will work to maximise your profits and protect you from disaster. Similarly, a failure to fulfil your contractual administration obligations can have dire legal consequences in the event of any future dispute.

In particular, contractors should ensure that they are familiar with contract provisions relating to the correct ways to:

• give notices pursuant to the contract,
• apply for extensions of time,
• inform clients of variations and seek approval, where necessary,
• submit progress claims, and
• manage disputes.

Tip 2 – Get specialist legal advice prior to signing a contract.

If you’re signing a Construction Contract for an amount that you couldn’t afford to lose, having a Construction Lawyer explain the finer details and provide their feedback on the contract can be a very valuable investment.  A Construction Lawyer can also recommend amendments to any contracts provided by Head Contractors and Principals to help ensure that there is a more level playing field between the parties, and even negotiate those amendments on your behalf.

Tip 3 – Develop your own plain English Construction Contract.

Construction Contracts incorporating Australian Standard General Conditions of Contract can be difficult to follow and administer unless you are an experienced Lawyer. Often these forms of contract are adopted by Principals or Head Contractors simply because they do not know what else to use or simply want to look like they know what they are doing. In most cases, however, a customised plain English Construction Contract would be of far greater use to all parties.

When the form of contract is not being put forward by a Principal or Head Contractor, I encourage contractors to develop and use a customised plain English long form Construction Contract with an accompanying Contract Matrix (see below). I have many clients that do this successfully, usually with the other party being grateful to receive something that is easier to understand and follow.

Tip 4 – Develop a Contract Matrix.

A Contract Matrix is a list of important contractual events, with a “how-to” guide for each. For example, the list might include:

• the commencement of site works,
• the discovery of latent conditions,
• dealing with requests for variations or change to the works required,
• the encountering of events causing delays,
• applying for extensions of time,
• when and how formal notices under the contract should be given,
• the making of progress claims,
• steps for practical completion and certification, and
• dealing with disputes.

Alongside each of these events should be step-by-step procedures covering off your contractual obligations for dealing with these events as they arise, and detailing any applicable time limitations.

A good Contract Matrix is written in simple, plain language and can even be in the form of a flowchart.

Tip 5 – Develop a set of Pro forma Contract Notices and Variation Forms.

Prepare templates for contract Notices and Variations so that they are quick and easy to issue. These should be checked (or prepared) by a Construction Lawyer. Consistently worded Notices that are familiar to both you and your client will go a long way to streamlining approvals and fast client responses.

Make sure that they are worded specifically for the contract you are using, and save them with any fields that need to be manually filled brightly highlighted.

Tip 6 – Have the right Administrator.

Have the contract administration process managed by an appropriate person in your organisation.

I often see growing construction companies leaving their contract administration to engineering and construction management graduates fresh from University. These young men and women can be an excellent choice, provided that they have the right support through specific training and management, and that they have both the authority and people skills to manage potential contractual problems when they arise.

For example, does the 23 year old, wet behind the ears Contract Administrator in your business have the wear with all and authority to stop the hardened 60 year old general foreman from using his two available 30 tonne excavators to excavate in rock he’s just discovered when the client hasn’t approved a variation for rock excavation?

The right support from both the Project Manager and company directors for fresh faced Contract Administrators is essential.

Tip 7 – When a problem arises get help early.

Form a relationship with a good Construction Lawyer and get the help that you need promptly, when you need it.

With most building disputes it is important to seek advice from an experienced Construction Lawyer as soon as it appears likely that a problem will arise. This will give you the best chance of avoiding a dispute and/or managing the problem before it grows into something bigger and ends in litigation.