By Malcolm Abernethy
Executive officer
New Zealand Contractors' Federation
One of the most important tasks when setting up a contract is to read the documentation to fully understand what you’re signing up for.
The Construction Contracts Act goes some ways to ensuring conditions are understood, particularly in the area of payments. However, as I have previously written, it is acceptable to adjust the payment processing durations to allow for processing claims from subcontractors and to add those amounts to the main claim presented to the principle. It is not acceptable to contract out of the Construction Contracts Act.
For example, a head contractor may ask for all claims from subcontractors to be presented by the 25th of the month, allowing several days for the subcontract claim to be added in to the head contractors claim. Similarly the subcontract agreement may allow for payment, say, 30 working days after the claim has been submitted, to cover the first five days for including the sub contractors’ claim into the head contractors claim and five days after receiving payment from the principle to process the claim and make payment.
Any changes that are made to the standard 20 working days need to be recorded in the subcontract agreement, and it is clear that cash flow for the subcontractor, in particular, will be affected by these changes.
In a recent case where something similar occurred, the subcontractor was advised that his site works could be started on the 30th of the month but the required completion was the 31st of the same month. The head contractor generously allowed just two working days for the subcontractor to complete almost three weeks work. The head contractor further threatened the subcontractor with liquidated damages if the work were not completed on time.
Once on site, it is equally important that access is provided for the subcontractor to complete their works unimpeded. In this case scaffold and construction vehicles were in the area to be worked by the subcontractor. After the much shorter duration provided by the head contractor and extended hours worked by the subcontractor using additional resources the works were completed on time with practical completion being achieved.
The subcontractor then submitted his claim on the 3rd of the month only to be told that the subcontract agreement required claims by the 25th of the month and that payment would not be made until the 25th of the month following.
So what are the lessons to be learned?
As a subcontractor, make sure that you understand what you are signing up for, paying particular attention to the following key points.
The allocation of liquidated damages and the required duration to complete subcontract woks should be included in the subcontract agreement so that it is clear to all parties what liability they have in the event the project is not completed on time. It is the responsibility of the head contractor to allow sufficient time in the construction programme to complete subcontract works. And it is the subcontractor’s responsibility to be aware of the project completion dates and to actively pursue the head contractor for the required start date. Subcontractors should be provided with unimpeded access to complete their works for the realistic and agreed duration needed.
Payment claim dates for submitting claims, payment schedules and finally payment itself should be clearly recorded in the subcontract agreement.
Subcontractors should ensure these elements of the subcontract works are recorded in the subcontract agreement and that both parties have read and understood the agreement. Develop a working relationship with the head contractor and monitor progress – if it slips, then formally request when the subcontract work can start.
Be warned! Read the contract to know what you are required to do, regardless of whether you’re the principal, head contractor or subcontractor.
Contractor Vol.32 No.4 May 2008
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