How to Ensure You Make a Loss in the Construction Industry (In Six Very Easy Steps)…

As most Contractors are aware, the construction industry is a challenging market sector in which it really is quite simple to lose money.

With the collapse of Carillion and harsh market conditions in 2018, 780 companies fell into insolvency in the first quarter alone [1].

In a bid to provide certainty, in this blog we wanted to set out six key steps for you to follow to ensure failure within the industry.

Step One – Do Not Compile a Cost Plan
A robust cost plan is one of the key building blocks to facilitate the successful delivery of a construction project.

Following a cost appraisal, a cost plan is compiled by the quantity surveyor or cost consultant to set out the construction costs of the project.

The cost plan is a live document and will develop in detail and accuracy over the lifecycle of the project.

If you want to ensure the project runs over budget, potentially to the point whereby it can’t be completed due to lack of funds, ensure you don’t create a cost plan.

Step Two – Do Not Review Construction Contracts or Negotiate the Terms
Not reviewing the construction contract (i.e. sign it, put it in the draw and hope for the best) is a sure-fire way to find yourself in dispute with the client.

By blindly signing on the dotted line; main contract terms (which you haven’t even seen) become binding, Liquidated Ascertained Damage levels (you may not be able to afford) may be levied against you and risk conditions which you wouldn’t have accepted (in a million years) if you had known, are carried by you.

Further, having negated to review the contract; you don’t need to negotiate the terms. After all, for a project to be successful; the terms of the contract should reflect the tender offering and the subsequent acceptance of that offering.

So, if you want to fail in contracting; ensure you do not have a quantity surveyor review the contract document to ensure the terms reflect your intended offering. Just proceed on the basis of the contract proposed by the client.

After all, it’ll save you a couple of hundred pounds if you don’t have it reviewed. It’s worth it, right?

Step Three – Do Not Compare Tenders. Accept the First Price
Another good way to ensure losses within the construction industry is to not test the market when procuring materials or services. Do not obtain a minimum of the three comparative quotations/tenders to ensure value, just accept the first price received.

Furthermore, ensure a quantity surveyor does not assess the quotations to confirm they are comparable in terms of inclusion and presentation`.

This will ensure the best price is not obtained and will guarantee you do not receive the best value.

Step Four – Ensure you accept verbal instructions (no written instruction required…)
“The site manager said just get on with it and they’ll sort the paperwork later… he’s a good guy, it’ll be fine”, sound familiar?

To ensure you don’t receive payment for variations, act on verbal instructions without obtaining written confirmation as set out within the contract (remember the contract you didn’t read in step two?).

This will ensure any work you deliver outside of the scope of the works is carried out at your own cost.

Step Five – Pay No Attention To the Construction Programme (Just Keep One Eye On The End Date).
If you want to pave the way to an unsuccessful project conclusion, ensure you pay no attention to the construction programme.

Pay no attention to key dates or activity sequence.
Keep an eye on the completion date and if you miss it, wait to see what happens (hopefully nothing).

Step Six – Do Not Employ a Professional Quantity Surveyor
Professional Quantity Surveyors provide a multitude of support services (see our previous blog (here) including:

– Monitoring Budget & Forecast
– Preparation of Applications / Valuations / Payment Certificates
– Assess and Measure Works Delivered and Variations
– Administer Programme Amendments
– Control Cost
– Maintain Ongoing Value Engineering
– Provide Project Management
– Manage Disputes
– Advice on Contractual Disputes

Conclusion
The steps outlined above are just a few of the ways in which a construction contractor can ensure they deliver a construction project over budget, potentially over programme and at a loss.

Alternatively, where you wish to ensure the successful delivery of projects within the industry, ensure you DO NOT follow these steps.

Should you require support in any of the areas listed, contact us at info@kjtaylorconstruction.com or call on 0115 9336131.

[1] The Guardian Online report. https://www.theguardian.com/business/2018/oct/01/insolvencies-in-uk-building-firms-rise-20-after-carillion-collapse. Monday 1st October 2018.

Who are you contracting with?

Contracting Parties – Who are you contracting with? – Are you sure? (Read on…)

The Scenario:

The parties are engaged and the project is going well until unexpected ground conditions pose a risk to the design.

Consequently; an independent third-party designer is engaged and contracted to provide a solution.

Sounds straightforward right?

Wrong…

Introducing the recent case:

Williams Tarr Construction Limited v Anthony Roylance Limited and Anthony Roylance [2018] EWHC 23

The Project: A Housing Development in Cheshire
The Main Contractor: Williams Tarr Construction Limited (WTC)
The Designer: Anthony Roylance Limited OR Anthony Roylance (And here lies the problem)

So who were the contracting parties?

WTC believed they had engaged Mr. Roylance in his capacity as an individual.

Mr. Roylance maintained WTC had contracted with his limited company Anthony Roylance Ltd.

And the Scope?

WTC set out Mr. Roylance had been contracted to design a solution to overcome the problems with the wall so that the wall would ultimately be fit for purpose.

Mr. Roylance stated the engagement had been limited to the scope of a design for the drain for the wall and maintained he had not designed the wall nor did the company carry the obligation to ensure the wall was fit for the purpose intended.

Conclusion

The courts considered the relevant correspondence between the parties in a bid to establish the parties to the contract, the basis of engagement and the scope of the parties.

The documents were found to be unclear which introduced further complexities with WTC producing alleged “design documents” which had been produced by Mr. Roylance with Mr. Roylance stating these were “as-built” drawings for record purposes.

WTC went on to state in the most part, the documents were that of Mr. Roylance acting in his capacity as individual as he did not use company headed paper which documented his limited company.

Mr. Roylance presented that the payments were processed through the limited company and the contractual draft collateral warranty produced by WTC made clear reference to the registration number of Anthony Roylance Ltd.

The key lesson from this case is to ensure the contracting parties and the scope of works is clearly defined within the contract to avoid confusion should a dispute arise.

Taylor Consulting – Who are they?

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KJ Taylor Consulting is led by Kelly Taylor, a qualified Quantity Surveyor, Commercial Consultant and training Adjudicator.

Having held appointments within the construction industry as Managing Director, Financial Director and Commercial Manager for the last 17 years, Kelly carries a vast experience with projects of varying sizes in most sectors including Petrol Chemical, Nuclear, Rail, Airports and Utilities.

Having worked for a large scale Plc. and utilities company between 2011 and 2015 and having held the responsibility of resolving their largest construction disputes, Kelly held an employed 100% track record or resolving disputes (many of which were six figure accounts) amicably whilst maintaining the client contractor relationship.

KJ Taylor Consulting Ltd. was incorporated in 2016 with a key focus of providing commercial support to construction companies across the UK, specifically specialist contractors.

I recently worked with KJ Taylor Consulting Ltd to review and negotiate a problematic Framework contract and provide representation at Client meetings
Kelly has a detailed and thorough understanding of NEC frameworks and is an outstanding communicator who remains impartial, focused and objective, particularly under pressure and in stressful situations. Her Contract expertise, knowledge and professionalism delivered outstanding results.

Quite simply Kelly is the difference between success and failure. I have no hesitation in recommending Kelly who goes that extra mile to get results
Kelly is an accomplished lecturer and provided ‘in house’ training on the NEC contract. I was impressed with the level of enthusiasm, knowledge and useful techniques provided during the day

From her extensive commercial experience and P&L responsibility, Kelly is not only able to make the NEC 3 Engineering and construction contract relevant and pragmatic; she makes it fun, interesting and memorable.
Sean Kelly
Director Of Customer Service

Kelly is an exceptionally astute, passionate and commercially adept individual who has a phenomenal knowledge about the construction sector. Her understanding of NEC frameworks coupled with her commercial and financial skills serves to benefit those who have the sincere pleasure to work with, opposite and alongside her. She has a clear, methodical and inclusive approach to working which makes working with Kelly fun, educational and successful.

Gareth Brewerton
Group General Counsel, South Staffordshire Plc.

NEC4 – The Next Generation Has Arrived – (However are you still getting to grips with NEC3?)

Following the March 2017 announcement by the NEC, it has been confirmed that the future of NEC has been reshaped with the introduction of NEC4.

NEC has listened to the extensive feedback from the industry and made the necessary changes to align commercial intentions with workability and operational delivery.  In addition, they have added a number of new contracts to bridge the gaps where necessary.


New Additions A significant change includes the introduction of new forms of contract including the NEC4 Design Build Operate Contract (DB0) and the Alliance Contract (ALC).

The DBO contract will allow users to procure a more integrated delivery solution by linking the various functions (design, construction, operation and maintenance) for a project life cycle solution from a single supplier.

The ALC (currently under consultation) is intended to provide a solution for users who wish to fully integrate the delivery team for large complex projects.

New Features In addition to the new forms of contract; new features have been introduced to the suite including a process for identifying opportunities to improve the outcome of the project (this is about collaboration and efficiency after all!).

The PSC, TSC and SC contracts will now use defined cost in the same way as the ECC; introducing congruence throughout.

New provisions have also been introduced into the ECC to further support the design and build method of delivery.

The NEC4 also introduces a new escalation period for dispute resolution prior to formal proceedings.


These are just a few of the changes which the NEC4 will bring, but are you still getting to grips with NEC3 and the contractual procedures that need to be followed?

If so, we are here to support.  Here at KJ Taylor Consulting we provide training, support and advice regarding the delivery of works under the NEC suite of contracts.

Call us on 0115 9336131 for a no obligation free consultation or visit www.kjtaylorconsulting.com.

NEC3 – ECC – To be kept out of the dark

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What is it about contracts that make people want to hide them in the draw (without having actually read the document) in the hope that they will never have to read or refer to them again?

Why does the phrase ‘Refer to contract…’ strike fear into the heart of most construction individuals?

Is it the presumed legal ‘lingo’ which quite frankly has even the most intelligent individual reading a sentence three times in a bid to understand the basics of what is being said?

Cue…  The NEC3 Engineering and Construction Contract (June 2005)…

The NEC3 ECC (June 2005 Edition) (previously the New Engineering Contract) is not to be feared. It is to be become the process partner for contractors executing contracts.

The NEC3 ECC has been developed to be used in engineering, building and construction environments and has been written to meet the needs of contracting parties.