FIS Consultant Len Bunton talks about the work that he carries out for members, and summarises some guidance that will help member organisations to improve cash flow within their organisation.
The assistance we provide usually starts with a phone call from a member organisation who has some sort of payment problem, and the answer is to respond quickly and to be provided with relevant communications and try to understand why the member is not being paid. The second stage of that would be to endeavor to have a discussion with the other party involved, and to get their side of the position and to see if there can be some sort of compromise that will allow the member to be paid.
I am finding that generally there is a willingness to have some engagement as contractors are now realising the costs, they will incur in going to adjudication, which are non-recoverable. So, resolution by negotiation and discussion is very much my preferred route, and it would only be if the other side simply refused to engage that you might have to think of some form of dispute resolution like adjudication or mediation.
What I have found is that after matters like this have been resolved then member organisations are very keen to get some support in either looking at other problem contracts or are looking at importing some systems into the business to prevent contentious issues arising in the future.
So, the type of issues that have come up recently have included the following matters to be dealt with:
- Are you sending a notice required under the contract to the right person and what does the contract or subcontract see you should do, and it is very important that you establish that from the outset.
- Do you have a payment schedule in your contract which sets out the date of the application, the due date, the final date, and the date when a Payless notice must be issued. Moving forward, you should ensure that you have this payment schedule is incorporated into every contract and you must stick to these dates. In my experience many claims fail because the contractor has not complied with the payment provisions in the contract, so you need to get this right.
- I have mentioned before in my Blogs, the importance of making sure that your application for payment are bullet-proof in the sense that you have provided as much information as possible to the other party, so that your application does not get hacked to pieces. Make sure you follow your application up by communicating with the other party and asking if they have any issues with your application and/or do they require any further information. Don’t just sit back and do nothing because in 3 to 4 weeks you might get a surprise when a payment notice comes in and you’re only going to be paid 50% of what you’ve claimed.
- Records are of critical importance. Make sure that you keep photographic records of progress on site or identifying any areas where you have been delayed or disrupted and put a date on these photographs and annotate them. These are the contemporaneous records that will be essential to the success of your claim. Make sure you regularly record areas where you are being delayed.
- Instructions – my advice is not to do any additional work unless you have an instruction in writing from the other party. If you can try and put a price on any varied work and get that accepted before you commence any varied work on site, or at least identify that hourly rates and markup on plant and materials that you will want to be paid. Don’t fall for the trap of the other party saying, “we will sort out a final account stage” because in my experience that doesn’t happen.
- Make sure that your Final Account is submitted on time with full supporting information and in compliance with what the contract says the timescale is.
- Make sure that you are constantly chasing payment. A FIS member called me last week to speak about an application that had been outstanding for nearly 3 months and they had not been chasing their money and in the current marketplace where cash flow is critical then this approach is simply not correct.
Several member organisations have asked us to assist them with the implementation of the above protocols into their businesses, making sure that their commercial and contract management are aware of responsibilities and fully understand the need to protect cash flow all the time.
I would like to make two further recommendations – please sign the RICS Conflict Avoidance Pledge, which is an early intervention process that will prevent issues from escalating into disputes which will have a significant impact on your cash flow. I think it also spells out a message to potential clients that you are a nonconfrontational business and an organisation that they would like to work with.
Please also consider the Construction Quality Improvement Initiative, which is something that FIS are promoting as well because I think member organisations need to ensure that they deliver a quality project. I have seen several instances in the last six months where the quality of projects has been shocking and this is causing contractors in the supply chain additional money to carry out remedial works, and in facing contra charges from the other party. The industry really needs to get a grip and to start improving the quality of what they build.
Finally, you may have seen in my previous Blogs the reference to the Best Practice Guide which you can find on the FIS website, and I suggest you will want to implement some of these recommendations into your business model because rest assured, they will make life a lot easier for you in running and managing the commercial aspects of your contract.
FIS Contractual and Legal Toolkit
As well as our vocal stance on unfair payment practices, FIS members can access a range of services to support them in managing the complexities of contracting and supplying products into the construction market, this includes template contracts, guidance on standard terms, support in dealing with disputes and a raft of best practice advice.
FIS publishes short blogs by its Consultant Len Bunton on contractual and commercial issues he experiences when supporting FIS members and the wider community – it is designed to help FIS Members avoid common traps and build on the FIS focus on collective experience. The blogs are published fortnightly as FIS member only content and released to SpecFinish two weeks after publication.
Len provides an initial free one hour consultation to FIS members to discuss and review specific issues and to help develop a strategy to address. Should further advice and support be necessary, thereafter then Len will agree the necessary fee levels with each FIS member.
You can find out more about FIS membership here.