Jacob Austin 00:00:00 Hi all. Jacob Austin here from QS.Zone. And welcome to episode 115 of the Subcontractors Blueprint, the show where subcontractors will learn how to ensure profitability, improve cash flow and grow their business. And for today's topic, I'm covering what exactly a quantity surveyor can do for your business beyond simply pricing jobs. Many subcontractors that I've dealt with in the past think of QS as just the folks that take off quantities and help price up bids, but their knowledge and experience can be so much more worthwhile for you than just that activity. A good QS can be like your commercial guardian, balancing their contractual knowhow, financial savvy, and onsite experience to protect your bottom line. So today's episode is all about how to leverage a QS to run a stronger, more resilient subcontracting business. And as ever, if you're new to the show, then be sure to subscribe to stay up to date on all things Subcontracting. So yes, today we're digging into all the ways a QS can support you beyond bidding for work. So we'll cover things like negotiating better subcontracts to managing risks, cash flow, getting paid on time, and perhaps even settling disputes all with a view to making your business more profitable and more sustainable.
Jacob Austin 00:01:39 And before you ask now, I don't mean sustainability in terms of our environment. Let's kick off with the foundation, your sub contract terms. Before you even set foot on site. The contract you sign up to can set you up for success or disaster. And this is where a SHS is sharp. I can save you thousands of pounds. Often main contractors issue subcontracts with pages and pages of amendments. Issues can come through that fine print and point out to you any unfair or high risk clauses. The goal for you is to negotiate out bad terms and ensure a fair deal before you put pen to paper. Some contractors will be trying to sneak in things that are unrealistic, such as notice bars and time bars for delays. Some of them are almost impossible to achieve, but then the main contractor hides behind it as a condition precedent for awarding extra time or extra cost. Other things include broad indemnity clauses, making you liable for consequential losses and direct losses that are beyond your control, and they should be able to advise you where to reject indemnities that are beyond normal law and to cap your liability if possible.
Jacob Austin 00:02:51 Other examples would be clauses saying you accept all the site conditions or survey data as is, and you can't claim that it's wrong. That moves unforeseeable risk for the site onto you. I've also seen clauses that enable contractors to dial up and dial down the level of resource on site to effectively force you to accelerate on demand, with no guarantee of any extra money. I've also seen subcontracts that strip out entitlements to extra time and extra money for disrupted access, for out of sequence work that is there to protect the main contractor, but cause you losses in the quite common instance that the contractor disrupts you. If you as a subcontractor, aren't okay with these kind of amendments and the clauses that sit behind them, then you absolutely have to get somebody who can to review the subcontract before you sign it. The JCT and a lot of main contractors amendments are written in some form of legalese, which doesn't help you to digest and understand what the clauses mean, but a QS will have experience of reading these if you don't, and they can translate it and advise which bits to reject or try and renegotiate the contract review.
Jacob Austin 00:04:05 As I've said a few times on the show, after you sign, you're legally stuck with the obligations that you sign up to. If the terms are unaffordable or they're too risky, that could be catastrophic for your business. So having somebody with experience to review and vet the contract is a crucial first step to protecting yourself. The next big area that cusses can help you is managing risk. Construction, as we know, is full of uncertainties, and as a subcontractor, you can often be bearing the brunt of that. One industry expert calls the shots the guardian angel of a construction project, always looking for potential pitfalls. And this is one area that a good QS can be really helpful for you. They try and sniff out trouble before it finds you. Some of that trouble might turn into opportunities, or at the least they identify it and analyze your risk and play a bit of what if to try and create risk management strategies that you can use. And what that's therefore. Is to try and avoid consequences of a risk coming back to bite you later.
Jacob Austin 00:05:09 If you work with subcontractors yourself, they might look to transfer some of that risk to people that work for you to limit your exposure. They can help you with things like creating a risk register and a risk matrix to rank your risks by severity and probability. Some of these depending on the kind of contracts that you're working on, you can flag up as an early warning to your contractor, and some of them will be your own risk that you have to handle and manage for yourself, but they can help you assess those risks, help you to budget for them so you're not left high and dry, or depending when you get them involved, they might suggest including contingencies or making sure that your subcontract allows for claiming that event if it plays out. Cost management can be a form of risk management too. By keeping the project on budget, many financial risks can be kept at bay. They can prepare a detailed cost plan for you, which you can use as a roadmap from start to finish, and keep an eye on that cost and your cash flow throughout the course of the job.
Jacob Austin 00:06:11 And remembering back to some of those risky clauses that we discussed, dealing with contractual risk as well. We mentioned earlier negotiating out, or at least highlighting some of the amendments that main contractors make, or many of those amendments will be designed to shift risk to you as a subcontractor. Even if you can't negotiate out those risks, then a QS should be able to advise you on what you can do to manage them to the heart of your business and what makes it all tick. Cash flow subcontractors live and die by their cash flow. I spoke about it at length last week. After all, you can be profitable on paper, but you can still go bust if cash doesn't come in when you need it. And a good QS after you've finished with their estimating capabilities, can be instrumental in prepping a detailed cost plan and a realistic cash flow forecast to inform your financial planning. Cost planning will be informed by your estimate and it's your financial blueprint for the job. It's listing your expected costs for labor, plant materials, sub subcontractors, overheads and this can be structured in a way that aligns with the project schedule and the scope.
Jacob Austin 00:07:22 This is really important because less than 1 in 3 construction jobs ends up within 10% of its original budget, with the majority running over. A good QS can keep you out of that unlucky majority. Using your experience, using data to check that you haven't grossly underestimated, and to include allowances for things you might not have considered yet be it waste inflation, minor design tweaks and so on. The class plan is there to tell you what this job is truly going to cost to deliver. It can be a live document that you can report against to maintain your margin throughout the course of the job. It informs the value side of your cost value, reconciliation or cost report, which will touch on again in a little bit. Cash flow forecasting, as I spoke about last week, is equally vital in mapping when money will flow in and out of your business. As a subcontractor, you will often face front loaded expenses but back ended payments. It's an in-built recipe for a cash crunch if you don't manage it, so a QS can prepare a cash flow for you, which predicts the timing of cash inflows and outflows.
Jacob Austin 00:08:34 That forecast is your early warning system for your financial health. It will show you that, for example, in month one, you'll be laying out 50 grand for materials and labor, but your payment for that isn't going to afford you for another 60 days, meaning you've got a shortfall that you need to cover. By spotting that early. You can plan. You can get your contingencies in place. A good QS will update that cash flow regularly, and that rolling approach lets you constantly see a few months ahead and catch any looming cash gaps. They'll also, with your guidance, be able to complete those stress test scenarios. What if the client pays so many days late? What if a project milestone slips and you can't invoice it as well as that? A crash will bring discipline to your billing and your collections. It's their job to make sure you invoice on time and correctly, and you chase up payments systematically. That kind of rigour can prevent those avoidable cash gaps from sloppy admin. As I said in last week's episode, maintaining discipline in your billing and collections sounds obvious, but disorganised invoicing is a really common mistake in the industry.
Jacob Austin 00:09:49 You can task a SHS with setting up a proper invoicing schedule, keep a receivables log, and remind you or the client as needed to keep cash flowing. The benefit of all of this is control and confident with a clear cost plan and a clear cash flow. You know the true costs and the target margin. You know ahead of time if you're going to need extra funding or if you can comfortably take on that next job, it turns guesswork into a strategic planning. Next, of course, there is cost performance and cost reporting. This is about continually tracking how much value you're earning, to how much you're spending, and making sure that the end result stays in. The black is about guarding that hard earned margin. The common way that is completed is with a CVR report, a cost value reconciliation. If you're not familiar with that, it's essentially a live tool that compares how much the work that you've done is worth to the costs that you've incurred so far. And with a forecast of the final outcome.
Jacob Austin 00:10:54 This is bread and butter work for QS. They'll produce these reports monthly, even bi weekly if you need to, on a particularly fast job. And it gives you foresight. If a particular part of the job is costing more than it should. To help you identify variations or to help you manage issues, it's there to ring financial alarm bells, for example. If by the end of the second month you've installed 50% of your work, but you're already 70% of the way through your budget, you need to find out why you need to try and correct the course. Completing that report is what helps you identify it. It's also there to tell you how good the estimate is, and it can inform things like checking your actual labor hours and materials purchases align with what was in that original bid. Tracking costs for variations so you can claim them back and helping to tell you ready for the next bid? Whether you need to up your rates to make sure you're covering costs and maintain margin, or what wiggle room you've got there.
Jacob Austin 00:11:56 If you need to bid really competitively to win a priority target job, you need that kind of information to make those key decisions. What you do with it is then down to you. One thing that you could do is hold monthly project review meetings with your QS, with your project team to look at areas whether your budget seems to be short falling, and try and identify why is it a one off issue? Is it something you can do something about and influence a positive end to the job? What are the corrective actions you might be able to take? Can you change to a cheaper material supplier perhaps, or try and target better efficiency out of your crew? Maybe there's potential variations that are flagging up in the cost that you need to get on the table. These reviews are about catching problems before they snowball and capitalising on opportunities whilst they're fresh in everybody's mind. Now let's talk. Getting paid. My favourite subject a QS, should be able to significantly smooth the process of prepping your application for payment, even if that's as far as they go.
Jacob Austin 00:13:01 It's worthwhile investing some time and effort into having a simple to use document that can be progressed on a quick walk around the site. It helps with assets to do this because they speak the same language as the contractor's shoes. If nothing else, they will know what the contractor is looking for more than likely, but if they've got any unusual requirements, Excel will probably have done the same thing before for another contract. Most subcontracts will require periodic applications for payment. It can be a tedious task, so getting a good system in place, an easy to use template is really helpful for this. Even if it's you that takes it forward, they'll get it formatted right. They'll know what supporting documents to issue with it. They'll know how to address arguments when the main contractor says, oh well, this is invalid. Covering off those technical details that make sure you get your payment in the right period. If you use a QS to progress your applications, then they can measure the work meticulously So that you can claim every pound you're entitled to and leave no money on the table for the contractor.
Jacob Austin 00:14:10 They'll also know what arguments can be made about your contractors. Pay less notice or payment notices. They'll keep an eye on the dates and advise you if you've got the right to suspend works or not, which you might not want to do for the sake of relationships. But they'll be able to draft the notice to see that you can do and do it properly. One of the biggest uses for QS is change management because, let's face it, no project runs without any changes at all, be it the client adding scope or unforeseen issues requiring extra work. Properly managing changes is where subcontractors can either make or lose money, and the QS is invaluable here because they'll handle the change process for you, helping you notify it within the contract requirements. Price it in a way that secures you the right amount of money and submit variation claims or quotations. They know the contract clauses around variations, so they'll address the valuation of changes in accordance with the valuation rules, and a good QS will price up variation with your best interests in mind, measuring it to ensure you've captured everything using contract rates and pro rata bits that have changed, and accounting for knock on effects like maybe the change disrupts some other work so you're losing efficiency.
Jacob Austin 00:15:33 They'll more than likely be able to pick that up and then make sure it's included in your variation. I mentioned speaking the same language about applications, but they'll also be able to do this when it comes to variations, and it gives them a little bit more strength to negotiate changes. So you're far more likely to get a better value of the change approved. You're also far better off doing it at the right time and administering changes as you go. Protect your profit margin. All these little extras that, if unmanaged, might go under the radar and eat your profit. But if they're captured and they're billed properly, they can add to your top line. Some of the time, you'll want to do it to make extra money, but absolutely all of the time you'll want to make sure you're not doing work for free. They also know how to deal with delays. If a project encounters delay or disruption, a queue will know how to draft a notice and how to draft a claim to get you either an extension of time or to get you extra loss and expense for the disruption, or the additional time you're going to be on site.
Jacob Austin 00:16:42 Unaddressed delays can cost you twofold. One, if you're entitled to more time but you don't have your hand out for it, then you don't get paid. You don't recover your cost for being on site longer, and you're also opening the door for the contractor to charge you liquidated damages or other costs that they're associated with that delay, which at some point can be even worse than the liquidated damages, and a QS whose on the ball will be able to make sure you're not penalised for delays that are legitimate and that you could claim from your client or contractor. The way that delay costs and disruption costs are claimed is different to a variation. An ex will know how they differ and what they need to do to be able to get their hands on the money for you. A QS can also put in place for you a final account strategy. Of course, your final account is the agreed statement of everything that the contractor owes you for the job that you're working on. It wraps up the original sum plus your variations adjustments into just one number that represents your bill for the job.
Jacob Austin 00:17:50 You need a comprehensive approach to this, and the QS strategy will be to start final account strategy early. Good practice is to regularly update your contractor of where the costs are going. Not leaving it to the last minute helps them to budge it. And of course, it sets markers in the sand of where you see the account going. Again, it differs from other documents. It's not the same as your application for payment. They'll also be able to defend you against some of the tricks and stunts that main contractors, QS, are likely to play with you. They know what can be charged as a contra charge and what's required to actually evidence it and land a contra charge. By knowing that they can defend your position, they can use the subcontract to defend you from the main contractor, all with the goal of maximising your final position. And finally, even with all the good practice in the world, sometimes a job will end up in a dispute if it gets to that point. A good case is going to be vital in helping you to prepare for adjudication, or even if we're going to court if it went that far.
Jacob Austin 00:19:00 The adjudication process is supposed to be a quick decision making process that gets cash moving. Within that, there's limited amounts of time for an adjudicator to make a decision, and it needs somebody to be prompt with responses, and it needs the right amount of evidence to back off. Claim submissions to evidence your position and a good knowledge of what you're entitled to charge. They can also be there to support other methods of dispute resolution, be it negotiation, mediation or those kind of principles. Meetings with the main contractors directors. Sometimes just having a QS can speak volumes to a main contractor because they're no longer thinking they can fobbed you off, that you and your quantity surveyor know how to operate your contract, know your entitlements, and know how to protect yourself with the law and with your subcontract. So if you're the kind of subcontractor who up until this point has been using QS just for estimating, you now know the full picture, you now can see what commercial knowledge can do for your business and why it pays dividends to have somebody with that knowledge on your side.
Jacob Austin 00:20:14 And if you can't have that person there full time, then that is what this podcast is all about. It's about arming you with the knowledge so that you can protect yourself too. Because I want to help the million SMEs, subcontractors working out there in our industry to build stronger, more profitable businesses. And to do that, I need your help. I need you to help me share the podcast with other people who'd benefit from hearing it. And of course, subscribe yourself if you haven't already. You can also head over to www.QS.Zone for more information. Thanks for joining me today. I've been Jacob Austin and you've been awesome.
