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Practical, valuable tips for managing construction contracts more effectively

Love them or hate them, contracts are essential for the construction industry to function. Far from being what some might think of as unnecessary 'red tape', contracts provide the mechanism that protects everyone's interests.

Whether you are a specialist sub-contractor, a product supplier, a client/developer, main contractor or anyone else in the construction supply chain, having a contract in place ensures everyone knows what's expected of them, what the deadlines are and the way they need to work.

Contracts can get messy and complicated, however, particularly on more complex construction projects. This is largely because construction work is never straightforward and rarely goes to plan for a whole host of reasons as anyone in the sector will know. External factors outside of our control almost always make it more difficult than it should be to meet our contractual obligations - poor weather conditions, product availability and supply chain problems, on-site labour shortages, changes in the design due to unforeseen site challenges, clients moving the goalposts... to name but a few.

Whilst we are never going to be able to eliminate these sorts of issues, you can minimise the impact that they have on your business as a contractor or sub-contractor. There are a number of simple steps contractors or sub-contractors can take that don't cost anything, but do require a bit of focus and the need to adopt new habits.

Don't assume contract wording means the same in all contracts

You can easily get caught out by the nuances of contracts by thinking that the wording used in a previous contract means the same thing in your latest one. There's a chance that it doesn't!

It can be difficult to spot the words and phrases which could cause potential issues, but in relation to communications and compensation events it is particularly important not to use words interchangeably.

Best practice is to question anything that you are unsure about. So, if you have any uncertainty about the wording used in the contract, query it and make sure you understand what it means for the way you work in the contract.

Remember... the contract is king, follow it or you'll 'pay now, argue later'

If you don't stick to the terms of the contract you leave yourself open to enormous risks.

In a recent contract that our team was asked to vet, the contract included two appendices that required a specific letterhead to be used when issuing both an Application for Payment and Default Payment Notice. Seemingly minor terms and wording like this can result in major problems for the sub-contractor or contractor if not followed to the tee.

If you are not sure about what the terms are, query it with the employer or have your contract checked by the Quantum CPM team who offer a Contract Vetting service.

Watch your words

Be careful not to overlook the risks associated with words and phrases which are routinely used in contracts, but could cost your business dearly.

For example, did you know that if you sign a contract with design which includes the phrase "fit for purpose", your professional indemnity insurance is unlikely to pay out?

Other contract words and phrases that could cause a contractor or sub-contractor major issues include 'consequential loss', 'protection', 'coordination' and 'signed contract'. Words like these may seem fairly innocuous, but they can have significant meaning in contractual terms, resulting in the potential for sub-contractors and contractors to lose out.

Don't make assumptions about what a word or phrase means if you are uncertain - question it with the employer before you sign on the dotted line.

Be 100% sure you know what you're signing up for

It is important to be vigilant by checking the contract particulars every time and don't take anything you read at face value!

Make sure you know things like "Dates for Completion", "Sections" and "known bottlenecks" by reviewing the contract in detail at the start of a project. Doing so will stand you in good stead for the entire project. Miss this opportunity and you could be left fighting throughout the project, especially at the end.

Undertaking a contract review, which typically takes a day to complete a thorough assessment depending on the amendments, will ease the pressure you may come under in the long run. The contract specialists at Quantum CPM can assist here.

Don't stop project planning once you've started the job

It will pay dividends if you can get into the best practice habits in project programming and planning. What does that look like? We suggest taking these five steps for starters:

• Ensure your programmes contain suitable programme logic which properly reflects the reliance which activities have on preceding trades. For example, if you require completion of works by alternative contractors prior to your activities starting, add a milestone event that conveys your reliance on others.
• Make your activity taskbars a manageable duration. Best practice says not to exceed task lengths of durations of 44 days, and this means that on larger projects it may be necessary to split activities into different parts of the site to ensure you keep control of progress.
• Frequently update and manage your project programme. If you don’t update your project programme with actual progress then you won’t be best informed on any likely programme slippage or betterment. It’s not always about delay – sometimes opportunities to finish works on site sooner than planned can arise and save you in site prelims.
• Make sure you share regular programme updates with the Contract Administrator / Project Manager to ensure all project stakeholders are notified and well informed as to the actual project status and any likely delays. This is important because it may lead to more collaborative mitigation measures being implemented, resulting in improved notification compliance, a higher likelihood of extension of time being granted, as well as recovery of costs. Ultimately, it will help you maintain positive relationships with other stakeholders in the contract.
• Create impacted programmes when change comes around and notify your employer of the expected impact of such change, along with any assumptions which you have had to make to predict those impacts. Nobody is expected to have a crystal ball but "wait and see" is never the best response.

Find out more

If you would like more information and specialist guidance on how to deliver your construction contracts more efficiently and profitably, please contact us or call 0161 974 6655.