RICS Contract Administration Seminar – 27 July 2017

In this seminar, David addresses all aspects relating to the contract
administration process, from record keeping and administering payment
provisions to managing dispute triggering events.

Full details on the RICS Website.

Date: 27 Jul 2017
Time: 7:30AM-9:00AM
Location: Perth
Venue: 197 St Georges Terrace, Perth WA, 6000
1 Hour Formal CPD

It doesn’t matter whether you work for a supplier, a subcontractor, a builder, the
client’s representative or the client themselves, if you’re currently involved in, or
about to commence a construction contract, this seminar will provide you with
the tips and advice on how to maximise your profits and minimise your risks.
Who should attend?

Any individuals who are currently (or about to be) involved in the contract
process – including project managers, contract administrators, programmers
and supervisors.

Speaker
David Court FRICS, CIArb – Managing Director of Contract Solutions International
David is a chartered quantity surveyor, a fellow of both the RICS and the
Chartered Institute of Arbitrators, and Registered Adjudicator, with extensive
experience in preparing and defending quantum and time related claims and in
providing contractual advice and training in a broad range of construction
sectors, including civil engineering, marine, oil and gas (LNG), mining, semiconductor,
building, mechanical and electrical sectors.

David specialises in provision of dispute avoidance and resolution services in
project, contract, claim, dispute and commercial management and regularly
conducts training and workshops.

AIPM Seminar – Adjudications on the Rise

CSI’s MD David Court is talking to AIPM Members at the George Hotel, Wednesday 27 July 2016.

Details are here and a link to the flyer is below 20160727 – AIPM Breakfast.

The topic is an old favourite:

“Contractors deserve fair payment for the work they perform in the same way as developers deserve to get what they believe they have paid for. But unfortunately a high proportion of subcontractors, contractors, owners and developers are writing off thousands of dollars each year because they believe payment dispute resolution is too costly, too time consuming and requires a law degree to navigate.  However, it does not have to be this way!”

AIPM Event 20160727

 

NECA WA Hold FREE Security of Payment Seminars

NECA WA are holding free Security of Payment Seminars. These seminars are run by CSI’s MD, David Court.

Anyone who has watched the television or read the newspapers recently will have seen a number of stories about contractors not being paid on both large and small jobs throughout Western Australia, for example the Perth Airport and Perth Children’s Hospital. Contractors are going broke as they wait to be paid and that in turn causes other companies to go broke. Even though the maximum payment terms for construction contracts are 50 days, we’re seeing examples like Rio Tinto trying to extend their payment terms to more than 90 days.

Read more here.

CCFA WA’s new series of Contract Administration & Commercial Awareness Seminars

CSI’s MD, David Court, is presenting a series of seminars to CCF WA members (and interested non-members).

You can view the CCF flyer here:
CCF WA Seminars

 

The dates are as follows. Please contact CCF WA (details on the brochure) if you want to attend.

SEMINAR LOCATION DATE AND TIME Members Non-members
Session 1 CCF WA Skill Centre
70 Verde Dr, Jandakot WA 6164
Thursday, 28 July
4.00pm – 6.00pm
$50/person $85/person
Session 2a CCF WA Skill Centre
70 Verde Dr, Jandakot WA 6164
Thursday, 25 August
4.00pm – 6.00pm
$50/person $85/person
Session 2b CCF WA Skill Centre
70 Verde Dr, Jandakot WA 6164
Tuesday, 20 September
4.00pm – 6.00pm
$50/person $85/person
Session 3 CCF WA Skill Centre
70 Verde Dr, Jandakot WA 6164
Thursday, 27 October
4.00pm – 6.00pm
$50/person $85/person
Session 4 CCF WA Skill Centre
70 Verde Dr, Jandakot WA 6164
Thursday, 24 November
4.00pm – 6.00pm
$50/person $85/person

 

From the flyer:

The public uproar that erupted recently after one of our largest mining companies unilaterally doubled its payment terms for payments relating to contracts over $3 million from 45 to 90 days has highlighted the issue of security of payments.

With the mining boom a fading memory, margins in commercial work constantly being driven downwards and contractors who had traditionally worked in different sectors of the industry now aggressively competing against you for the limited work available, it is now more essential that your business maximises its opportunities and minimises its risks during the contractual process.

Contract conditions can be onerous and, without the records to support your payment claims, all your hard work may end up being for zero return.

And in a typical business that works on a 5% margin, it will need to generate an extra $2.4 million in revenue to make up the lost profit on a $120,000 bad debt. David Court of Contract Solutions
International is conducting a series of seminars starting in July on Contract Administration & Commercial Awareness.

In these seminars, David draws on his three decades of experience in dispute avoidance and resolution services to contractors to provide practical advice, guidance and handout notes on:
• Negotiating and reviewing contracts
• Administering contracts in relations to programming, planning, delays and time extensions
• Closing contracts and capturing variations, and
• Avoiding and dealing with disputes.

Which sessions suit your needs?

Session 1: Negotiating and reviewing contracts, ensuring your terms and conditions are up-to-date and
appropriate, your program is appropriate for your scope of works and the risks you have agreed to take on.

Session 2a: All aspects related to contract administration from record keeping, ensuring timely payments, dealing with variations and similar contractual issues that can cost you time and money.

Session 2b: Contract administration related to programming, planning, disruptions, extensions of time etc;
implementing and maintaining basic planning programs to basic planning programs to preserve your rights to extensions of time and protection from liquidated damages. “If you fail to plan, you plan to fail.”

Session 3: Closing contracts to ensure all variation works are captured and paid for, all delay and disruption impacts are acknowledged and paid for and all claims are submitted and/or resolved to ensure final payments are made and retentions are not wrongly withheld.

Session 4: Advice and guidance on how to deal with disputes at all stages of the contractual process; how to avoid or resolve disputes.

New Opportunity: Manager, NSW

Due to an increase in workload in NSW, CSI seeks a highly motivated and appropriately qualified construction professional to take up the role of Manager of its NSW office.

The ideal candidate will have strong presentation and communication skills as well as considerable experience in the fields of contract/commercial management and dispute resolution within the Sydney/NSW construction and engineering market.

Previous experience in business development and management will be a distinct advantage. See the careers page for this position for more information, and instructions on how to apply.

Security of Payment – Who Can Afford Not To Get Paid

Security of PaymentNECA WA, MPGA and MP&DA are holding regular Contract Administration & Commercial Awareness seminars, providing the opportunity for participants to receive advice on their own specific contracts
and commercial issues, while learning from the experiences of our presenter and other members of the group.

The seminars will be facilitated by our very own David Court. David has an extensive background in contract dispute resolution. David’s experience includes both preparing claims brought under the Act and providing advice to contractors who are pursuing or defending claims. As a Registered Adjudicator, he brings a unique insight into all aspects of the dispute process. Additionally, David provides contractual administration advice and understanding in a broad range of construction sectors, including the electrical industry.

The seminars will incur a small fee of $50 and will alternate between Joondalup (NECA) and Maylands (MPGA) locations. Monthly seminars commencing in May will be scheduled midweek from 4.30pm – 6.30pm. If you are interested in attending these seminars, please contact NECA to receive further details.

External Administration Under The Corporations Act

Contractors, subcontractors and suppliers may at some stage be engaged by a company that ends up experiencing financial difficulty, in some instances this will lead to insolvency. This, in turn may require the subsequent appointment of external administrators which may in turn result in the non-payment of outstanding debts. This article provides a brief explanation of the main types of external administrators which may be appointed to insolvent companies under the Corporations Act.

Firstly, what is insolvency? In short a company is insolvent when it can no longer pay its debt as and when they are due. If a client is paying only a portion of amounts assessed as due and payable it may be worth considering whether the company is able to pay the full amount as this could be an early sign of cash flow problems and subsequent insolvency.

The external administration methods under the Corporations Act include receivership, voluntary administration, deed of company arrangement, liquidation (also known as winding up), and scheme of arrangement.

Voluntary administration involves the appointment of a registered, independent insolvency practitioner (called an ‘administrator’) who takes complete control of an insolvent company usually for a relatively short period of time. An administrator is usually appointed by the company directors, a liquidator or a creditor who has a charge over the whole or substantially the whole of the company’s property. The primary aim of voluntary administration provisions of the Corporations Act are to maximise the chances of the company or its businesses remaining in existence by allowing the insolvent company to ‘trade out of trouble’ under the direct supervision or management of the administrator. If the administrator determines that it is not possible for the company to trade out of trouble over a period of time he or she will then set about liquidating the company. The secondary goal here is to achieve a better return to creditors than that which would have resulted from an immediate liquidation.

Receivership involves the appointment of an independent, registered insolvency practitioner called a ‘receiver’. A receiver is generally appointed by a secured creditor or a court. The role of a receiver is to take possession of the secured property, sell or liquidate the assets, and out of the proceeds repay the secured debt owed by the company.

Liquidation will ultimately result in the company being deregistered and ceasing to exist as a legal entity. Liquidation is an orderly process under which the company’s affairs are would up, its property sold, debts owed to its creditors repaid and the surplus (if any) distributed among its shareholders.

Scheme of arrangement enables the rights and liabilities of shareholders and creditors to be recognised under court supervision. The aim of a scheme of arrangement is to obtain binding agreement that modifies, reorganises or alters the legal rights of creditors and shareholders.

A contractor, subcontractor or supplier engaged by a company will generally be an ‘unsecured creditor’ and as such will be in a vulnerable position in the event that any of the above external administration methods are implemented as they will fall behind ‘secured creditors’ in order of entitlement. A secured creditor is a creditor with the benefit of a security interest over some or all of the assets of its contracting party which is usually limited to banks and financiers.

Risk mitigation strategies which should be undertaken by a contractor include:

  • Awareness – be aware of the potential for the above to occur;
  • Monitor the contracting party’s performance on other projects in order to form a view on its financial stability;
  • Develop a commercial strategy to deal with risk throughout the project, do not wait until it’s too late;
  • Claim payment in accordance with the contract and in a timely manner, each day counts;
  • Claim for other entitlements in accordance with the contract;
  • Recover payment in a timely manner by applying contractual pressure and use of the relevant security of payment legislation;
  • Adopt a ‘do it now’ rather than a ‘do it later’ approach to commercial tasks; and
  • In Queensland the Subcontractors’ Charges Act may be a useful tool in assisting a subcontractor however this requires action prior to any of the above external administration methods being implemented. A claim under the Subcontractors’ Charges Act may not guarantee payment however it may increase a contractor’s chances of recovering amounts owed as. As with most claims, time is of the essence and advice should be sought immediately if a contracting party seems to be financially stressed.

Contract Solutions International (CSI) regularly work with contractors, subcontractors, suppliers and owners in providing contract and commercial advice in relation to administering and managing contracts.

 

BCIPA Reforms:  The Two-Tiered System of Claims

Adjudication in Queensland is undergoing a period of transition.  The Wallace Report recommended changes to the current system and the revised legislation is currently being drafted with a proposed implementation date of 1 September 2014.  The changes are intended to create a more transparent adjudication system, and to this end there are several important adjustments in the pipeline.  These include:

  • The abolition of Authorised Nominating Authorities and the creation of an adjudication registry within the QBCC;
  • Ability for claimants to withdraw an application;
  • Longer timeframes for responding to more complex claims;
  • Shorter timeframes in which to serve a payment claim (6 months from when work was last carried out);
  • Ability for respondent to include reasons for withholding payment in the adjudication response, whether these have been raised in the payment schedule or not; and
  • The distinction between ‘standard’ and ‘complex’ claims.

This paper discusses this final bullet point.

Although the amendments are still being drafted and we are yet to see the final version, the distinction between ‘standard’ claims’ and ‘complex’ makes sense; there are genuine and understandable reasons for making this distinction.  First and foremost, not all adjudicators have the same background or experience.  The more experienced are more suited to larger and complex claims, while the newly initiated, whilst still classed as ‘competent’, may need to cut their teeth on some less complex decisions.  There are plans to ‘grade’ adjudicators. Presumably the grading will determine which type of application is referred to which adjudicator.

It is unclear at this stage how descriptive the legislation will be, but there have been suggestions that a ‘complex’ claim will be defined as those:

  1. Containing latent conditions, and/or
  2. Containing time related costs, and/or
  3. With a value in excess of $750,000.

Presumably, standard claims are everything else.

Should the value matter?  Whether it is a $1,000 application or a $1m application, it shouldn’t make any difference to the facts and principles of law.  Yes, the documentation involved in a larger value claim may take a bit more time to work through, and consequently the adjudicator would be expected to take longer to come to a decision. But the value doesn’t in itself make a matter inherently technically complex.

Latent conditions and time related claims are areas that would require an adjudicator to have some degree of technical, commercial or contractual knowledge and the grading of adjudicators, as a minimum, has to address these areas.

We can predict a number of problems arising from a two-tiered system.  Who would define the claim as being ‘complex’ or ‘standard’?  Is it the claimant, the respondent, the registry or the adjudicator?  What is a time-related claim?  Would a subcontractor who contracts on the basis of an hourly rate be considered to have submitted a time-related claim?  What would the consequences be for nominating a standard claim when it is subsequently found out to be a complex claim?

The answers will become clear when the revised legislation is published and in the meantime we can only guess.  One thing for sure is that there is going to be a period when adjudicators’ decisions are increasingly challenged before the courts.

Frazer Beggs – Regional Director

Should you require any adjudication advice, whether for the preparation of an application or a response, please contact the team of specialists at Contract Solutions International. 

The Importance of Commercial Personnel in Construction – A Live Example

Summary of points to note

  • Involve commercial personnel early in a project to allow the necessary systems and procedures to be implemented. This will allow issues to be detected and dealt with at an early stage.
  • Construction and engineering problems will require commercial solutions.
  • Allow for an adequate number of commercial personnel on a project, this is not an area to cut costs on.
  • In any event, it is likely that a good commercial team will pay for itself.

Background

In early 2013 CSI were engaged by an EPC contractor to provide commercial assistance on a  project midway through the construction phase. At first glance the assignment seemed to be fairly typical  but the severe lack of both commercial personnel (even with our involvement – which initially was one consultant) and adequate commercial systems in place soon became apparent.  Despite CSI highlighting these problem areas the EPC was unwilling to dedicate the resources necessary to effectively manage the commercial aspects of the project. Construction and engineering complications ensued exacerbating the problem. The EPC was  unprepared and therefore unable to effectively deal with the commercial fall-out of these issues. The purpose of this case note is to highlight the importance of embedding an adequate commercial team and implementing the appropriate commercial systems at an early stage in order to be ready for complications which may arise.

Initial Tender

The EPC’s resourcing problems were not confined to the commercial area, the initial tender was compiled using a limited number of personnel which lead to various oversights culminating in the project being underquoted by around an estimated 10%. A comparatively low tender/ contract price will on most occasions place a contractor in dangerous territory bringing about an even greater need to closely manage and monitor costs and commercial issues along the way. The EPC in question seemed to have the opposing view which was along the lines of ‘we can save on costs by managing the project with a small team’. A small management team will often result in less monitoring and problem detecting across the board.

Senior Project Management

The EPC contractors senior project management  viewed commercial personnel as an unnecessary cost and saw little value in the work they carry out. This cultural clash further exacerbated the problem as  the small commercial team attempting to rectify the problems were note given the necessary support from above. .   Part of CSI’s service provision was regular meetings with the EPC’s corporate level management who were advised of the commercial deficiencies and agreed that changes needed to be made.  However the dichotomy between head office and the project team continued and very little changed.  Ultimately this seemed to be a corporate level failure to become involved in project level issues . In time there were changes to the senior project management,   however this action was taken by the EPC’s corporate level management far too late and at a stage where the project was virtually unrecoverable.

Construction / Engineering issues

The project was plagued with common issues experienced on industrial projects such as:

  • Incomplete design
  • Late design
  • Late delivery of equipment and materials
  • Incorrect component delivery requiring rework
  • Work scope not accounted for in original tender

Construction of the project was originally programmed to be carried out over an 18 month period; this has been extended and will continue to push out to around two years.

Commercial Solutions

The construction / engineering issues listed above are common enough within construction and engineering projects that EPC and construct only contractors alike should be able to quickly identify and put into place a strategy  to deal with them. Construction and engineering issues will often require significant commercial input in order to recover  additional costs incurred. It is a commercial function to gather and record the relevant raw data and subsequently present it in a suitable way to maximise chances of recovery.

Subcontractor Management

From an EPC’s perspective commercial personnel are an important addition to any project management team to carry out day to day tasks such as managing subcontractor’s claims for payment, variations, additional time, prolongation costs and to assess the validity of any assertions made within meetings or correspondence in general. Any one of the above can be a time consuming task and inadequate numbers of commercial personnel will in many instances lead to some of these responsibilities falling between the cracks and not being carried out placing an EPC in dangerous territory. An adequate and robust commercial team will deal with claims and commercial issues when they arise and notallow them to pile up creating a ‘fire fighting’ situation.

Conclusion

In this case, even if the project had run smoothly the EPC was insufficiently staffed to effectively manage the commercial aspects of the project.  The further issues which arose regarding engineering and construction changes painfully exposed these weaknesses.

Commercial personnel should not be viewed as an unnecessary cost or even as a necessary evil.  A good commercial team is an important part of the overall project team.   Through the effective management of cost and the maximising of value, the commercial team can in many cases pay for itself.

 

Failing to Plan is Planning to Fail

The construction process is fractured with a myriad of requirements and components along with a range of stakeholders, contractors, consultants, subcontractors and suppliers all of whom can contribute to the success and failure for completing and delivering the project on time. A robust programme and good planning controls is essential for the project and commercial management team to successfully navigate through construction and mitigate issues that arise during the construction and project progress to completion.

So why is planning so important?

Sample Gantt Chart

Producing a solid program agreed (by parties) at the start, which demonstrates appropriate controls during execution will mitigate issues as they arise and aid in meeting the contractual, time and commercial objectives. Failure to produce a solid program can leave all involved parties exposed to greater risks and protracted disagreements about liquidated damages delays and costs. Darryl Goringe – Senior Consultant at Contract Solutions International provided a presentation to the Royal Institute of Chartered Surveyors (RICS) Brisbane Chapter in April 2014 when he highlighted the importance of a good programme and resilient project controls.

In Review:

From the early stages at concept or tender it is important to establish the strategy in delivering the programme by identifying the key logic steps as well as the risks and opportunities. It’s a team effort and project members and stakeholders need to be engaged in this process and to take ownership from the beginning. As the project progresses maintaining accurate reports on programme performance are essential for analysis of trends and project status. If the programme begins to slip then the cause of this needs to be established and accounted for and delays need to be demonstrated and submitted to the client or principle as required in the contractual terms. Delay should be demonstrated at the occurrence when team involvement is available and records can easily be established which can also lead to a faster resolution of the issues. The planner must ensure that performance is reported accurately so that an honest and realistic view of programme is presented. It’s a proactive role and not just about proficiency in planning software. The planner needs to give direction to the team by communicating any concerns on performance and risks as well as recognising opportunities and sounding the alarm bells related to programme as soon as they are identified. Take time to consider your planning and project controls needs. The investment in the expertise of a skilled planner and the commitment from the team to maximise the programming process will pay dividends and is likely to enable savings on time and cost to be made. If you would like to know more about implementing robust planning practices please contact Darryl (he can be reached at the Perth Office) and the team at contract solutions for further discussions.