Jacob Austin 00:00:00 Hi all. Jacob Austin here from QS.Zone. And welcome to episode 118 of the Subcontractors Blueprint, the show where subcontractors will learn how to ensure profitability, improve cash flow and grow their business. Last week, I introduced you to the start of our mini series on knack for engineering and construction subcontracts, and we discussed the various options that make up the subcontract. And that can vary the contract wildly depending on which ones are selected. And today, we're going to cover some of the first principles of NEC and the obligations of the subcontractor, as well as the quality management clauses. So we'll be looking at fundamentally how the parties work together, starting with that all important spirit of mutual trust and cooperation. So grab your notepad and let's dig in. So starting right at the top with the ten series clauses in the NEC suite of contracts. These are general provisions that establish how the parties behave throughout the contract. The most famous, if there was such a thing as a famous clause in the sub contract, is 10.1, that the parties shall act as stated in this contract, and in a spirit of mutual trust and co-operation.
Jacob Austin 00:01:36 That is the very core principle of the NEC suite of contracts, and is what pushes and underpins that collaborative mindset that the contract is built around. The duty was introduced following the Latham Report back in 1994, which recommended that contracts include a specific duty for all parties to deal fairly in an atmosphere of mutual cooperation. Of course, the NEC embraced this by requiring good faith style behavior. Even if English law doesn't generally impose a broad duty of good faith by default. So NEC4 splits that obligation into two sub clauses, one saying that the parties must act as stated in the contract, and the other saying they must act with that mutual spirit of trust and cooperation. Now, Acta stated in the contract, that phrase might sound obvious, but it's got really big implications. It means you must do what the contract says you should do and in the way it says to do it, and it imposes that shall obligation that crops up throughout any other kind of contract. And by doing that in one clause, it means that the rest of the document is able to read really simply because when we get a little bit further into early warning clauses, we no longer have to spell out that the contractor shall send an early warning to the project manager.
Jacob Austin 00:03:04 The project manager shall send an early warning back to the contractor, because that requirement that says you must do that is covered by that early clause. And that means the statement can be really simple. The contractor and the project manager send each other early warnings, but as well as that, it actually reinforces the requirement to communicate, the requirement to notify and to follow the procedures that the contract spells out. That means you can't just ignore the contracts, processes, and time bars in the name of cooperation. For example, if the contract says that a compensation event notice must be given within eight weeks, the contractor isn't expected to waive that just out of friendliness, and the subcontractor must still submit that notice on time. Mutual trust and cooperating with each other doesn't waive away the requirement to act as stated, and it forces you to be contractual to give notices to warn each other of issues. And so that simple statement underpins every requirement upon both parties to the contract. And the very next one of those is that spirit of mutual trust and cooperation is the next good faith obligation.
Jacob Austin 00:04:22 It's calling for openness. It's calling for fairness and for collaboration. It means each party should consider the other's interests as well as their own, and avoid nasty surprises or ambushing. So in practical terms, it means things like communicating early about problems, which is exactly what the early warning process, which we'll discuss in a later episode, is all about. It means sharing relevant information and not withholding critical facts. It's avoiding opportunistic behaviour, for instance, not exploiting ambiguities or trivial technicalities to the other's detriment. It stops you from acting unreasonably. Of course, you can still protect your own legitimate commercial interests, but you're not doing it improperly to exploit the other party. It means you're collaborating to solve problems jointly, rather than retreating into adversarial positions and arguing about who got what wrong first. So, for example, if an unforeseen site condition arises, both the contractor and the subcontractor should be warning the other one. They should be getting their heads together to find a solution before it starts costing either of them money, and then following that through into the compensation event process.
Jacob Austin 00:05:42 But by this time, they've hopefully already established the best way forward that's going to mitigate the risk, and it's going to give the best outcome. So it's asking for foresight to help each other, avoid issues, avoid delays and avoid unnecessary costs. Importantly, what that clause doesn't mean is self-sacrifice or ignoring your own interests. It's not about being naively nice. It's about being reasonable and fair. The courts have made it clear that the NBC good faith obligation doesn't force a party to give up advantages that the contract explicitly gives them. So, for instance, let's say a subcontractor misses a deadline for a claim. The contractor can enforce the time bar clause. The contractor isn't obligated to remind the subcontractor or to waive the deadline under good faith. So you have to play by the contract's rules. But you do it in a way that's not deceitful or unnecessarily hindering the other. And so that means fostering a team mentality. Being proactive about solving problems, communicating risks together, and not hiding bad news. As a contractor, you're treating your subcontractor as a partner.
Jacob Austin 00:06:59 You're responding to communications promptly as a subcontractor. You're not arbitrarily holding back information. You're helping to resolve issues. And if both sides consciously ask themselves, are we doing this in the spirit of mutual trust and cooperation during decision making, then they're more likely to catch themselves before they descend into those us and them kind of tactics and habits. So these two clauses together, they're setting the tone. You follow the contract to the letter, but you also ask, is there a cooperative way to achieve the goals here? And those goals for you as the subcontractor are set out in the 20 series clauses? This is your set of main responsibilities under the subcontract, and they spell out what your primary obligations are. Basically what you've got to achieve to fulfil the subcontract if clause ten is telling you how to act. Clause 20 and its sub clauses A spelling out what must be done to get the contract over the line. And that starts with providing the subcontract works. Fundamentally, you, as the subcontractor, is obligated to provide the works as defined in the subcontract scope that used to be called the work's information under NEC3.
Jacob Austin 00:08:21 So that means delivering everything described in the scope to the specified quality standards and the requirements. It doesn't go into mega detail here. It's simple statements, and it assumes that the scope is going to fill in the gaps. It also assumes by default that the contractor is going to design the work. And so if there is design responsibility, the next clause then kicks in saying that the subcontractor must design those parts of the work as stated in the scope. So if there is no statement in the scope to say you have to design x and y. Then it falls upon the contractor to design everything. If you are completing design, then the contract requires you to submit your design documents to the contractor for acceptance. And that mirrors how the contractor submits designs to the project manager in the main contract. You're allowed to submit design in parts, as long as those parts don't depend on a piece of missing information for them to be accepted. So it has to be appropriate. And a practical tip. If you are a subcontractor with design responsibility, then make sure you understand that review and acceptance procedure and the timelines for that late submissions can delay acceptance and ultimately delay the project.
Jacob Austin 00:09:41 It's also worth noting that unless the contractor is rejecting your design because it clearly contravenes a statement in the scope, then comments on that design are probably embellishing the scope and embellishing the scope is a change to that scope, and it's that area that you're likely to see compensation events flow from. Worth bearing in mind when we get to reviewing clause 60 a little further down the line. Next, you're obligated to provide key personnel so any C contracts identify certain key people in the contract data. This mirrors the main contracts clause. So say your site manager is named as a key person. If you need to change who that is, then you have to propose a replacement. And they have to have equivalent qualifications for the contractor to accept. And on the flip side, if the contractor has got a good reason to ask you to remove a person from site, then they've got the right to instruct you to do that. So practically, you don't want to list somebody as a key person if you don't intend for them to be actively involved.
Jacob Austin 00:10:54 The contractor expects that person to be on the job. Some staffing changes are unavoidable, of course, but communicate them early and expect to provide details of the replacement person to avoid a fallout about it. You're obligated to work with the contractor and with others. Construction, as we know, is a team sport, so you're expected to cooperate with the contractor and with other parties, which might be other subcontractors. It might be statutory authorities or approvers. What it does say is you need to work with others as stated in the scope or as instructed. That could in practice mean sharing access to site areas, coordinating schedules with another trade. But arguably, if those interfaces aren't stipulated in the scope, if they're instructed, then that instruction is a change to the scope, and it might be introducing another constraint that you've then got to work with. Does that smell like a change to you? Because it does to me. Another one to discuss when we get to compensation events. Next, if there are key dates specified.
Jacob Austin 00:12:05 These are dates by which a certain portion of work has to be done, or the work has to meet a particular condition. You, as the subcontractor, must meet those dates or potentially bear for the liability of any cost that the contractor incurs for missing it. Let's say you're the plastering and petitioning subcontractor, and you have to get zone A of a building prepared, studs up and boarded on one side. And you have to do that by a particular date so that the electrical contractor can follow on and do their first fix. That's the kind of operation you'd expect to see listed as a key date. If you miss your obligation to meet that key date, then there's likely going to be cost involved. You might be delaying the contractor, you might be delaying other subcontractors and the contractor will be entitled to charge you for the costs involved in you missing that date. So you really need to pay attention to key dates, and you also need to look at if there's a compensation event that affects your meeting a key date, then you need to make sure that key date gets adjusted.
Jacob Austin 00:13:10 It's easy to forget because you're all the while thinking of how much is it going to cost me? What extra prelim can I charge? How much longer have I got to finish the job? It's easy to miss the key date in the mix, and falling foul of it might mean getting a contra charge. Next we have subcontracting parts of the work. Now, even as a subcontractor, there are occasions when you sublet some of your work. Generally, you can't do that without the main contractor giving you permission. So you have to submit any proposed subcontractors to the main contractor for acceptance. There are reasons that the contractor can give for not accepting that subcontractor, and you also have to submit your proposed terms that you're going to appoint that subcontractor under to the contractor for acceptance as well. They will want to make sure that your subcontractor doesn't allow something that conflicts with the head contract. So you'll need to flow down key obligations from your contract to your sub subcontractors. Another point to note is that the main contractor has no obligation to manage your sub subcontractor.
Jacob Austin 00:14:16 They manage you and you are expected to control that sub subcontractor as if they worked for you directly. Let's say you're the mechanical subcontractor and you sublet the sprinkler installation to a specialist. You manage that specialist, you bring them in on the days that they're supposed to come in, the contractor manages you. They don't have any dealing with the sprinkler contractor. They shouldn't be picking up the phone and chasing them for not attending. That's your job. And the contractor requires that to be the case. Your other obligations are to follow instructions that the contractor gives you, and provided that it's in accordance with the contract, you are obligated to follow it. You're also obliged to work in line with any current health and safety requirements, as in health and safety law and any other requirements that is stated in the scope. So in practical terms, that means sticking to the site safety rules, submitting risk assessments and method statements, and ensuring your work practices is keeping your labor safe. So the clause 20 series, it's basically your to do list and to be able to get on board with that to do list, you need to thoroughly read the scope.
Jacob Austin 00:15:28 That scope is going to comprise specification drawings and any other constraints on how you do the work. That might be safety policies, or it might specify things like rigid working hours due to having a school next door. The contract data is the other place you need to read, and that's going to tell you things like the key dates, Who is responsible for design and where to find that scope? Information from? Working down that list of obligations in conjunction with your scope and your subcontract data, you can generate yourself a quick checklist of all your contract deliverables. When you design submissions are needed. Permits you might need. Documentation. You need to provide, key dates you need to hit. And of course, when you need to get finished by. If any of those are at risk, then going back to that earlier obligation, then speak up early. Inform them it's part of that acting in mutual trust. Now we're going to jump from the 20 series to the 40 series without going into the program, which sits in between that.
Jacob Austin 00:16:32 The 30 series program is enough of a topic for it to be its standalone episode. So we're going to come back to that next week and do a real deep dive into any C compliant programming. So to round up this week's topic, we're going to talk about quality. Quality is covered by the 40 series clauses, and at the start of it is the requirement for you as the subcontractor to operate a quality management system, and that needs to comply with the standards and requirements stated in the scope. Practically, that means that you should have a documented system for managing quality, covering procedures for inspections, testing, approvals and so on. And clause 40.2 says that you, as the subcontractor, must submit a quality policy statement and a quality plan for the job to the contractor for acceptance. That policy is typically a high level document setting out your stall and your commitment to achieving good quality. Then the plan tends to be more detailed. How are you going to achieve the quality? What whole points, inspections and testing you're going to do to ensure the quality of the work that you're doing? The contractor reviews and accepts that plan, and they need to check that it meets the overall project requirements.
Jacob Austin 00:17:52 It needs to cover the things that are listed after it in the contract, the tests and inspections that are specified in the scope, and any others that are required by law or particular standards that could include material tests, concrete cube tests. Inspection of weld tests of a system. If the scope or regs call for it, then you must do it and usually bear the cost of that unless the scope explicitly states otherwise. You also have to give the contractor advance warning of tests. The contractor specify how much notice you need to give so that the contractor's representative can be present and witness the test if they want to. They might well also extend that to the client's supervisor. Failing to give notice might mean that the contractor doesn't accept the test result, and then you might have to repeat the test at your cost. So be tidy about your admin on this one. The contractor is also allowed to carry out their own tests and inspections at their own cost. This aligns with the role of the supervisor under the main contract, and they might want to do spot checks or audit tests, either to verify your tests or to get third party opinion, and so on.
Jacob Austin 00:19:07 If the contractor wants additional testing beyond what's in the scope, then they either do it themselves or they instruct you to do it and cover the cost of it. The only time that that's not the case is if that test uncovers a defect. There's also the situation where you've covered up the work too soon and prevented a testing inspection from taking place. If you do do that, then the cost of uncovering that work, and potentially the cost of doing the test depending on the scenario could fall to you as well. We then have defects despite everybody's best efforts in quality management. Defects can and do occur. The NEC defines a defect as part of the works that is not in accordance with the contract. That covers a multitude of sins, whether it's cracking where there's not supposed to be, or somebody installed the wrong spec of product. It might even be somebody painted the door the wrong color. All of these could be defects. The contractor can instruct you as the subcontractor to search for a defect. If one is suspected, there is a compensation event tied to that.
Jacob Austin 00:20:14 So if no defect is found, you can claim the cost of that search back along with, of course, the cost of putting the work right. Obviously, if there is a defect, then you're covering it under clause 43.2. Both the contractor and the subcontractor should notify each other as soon as they become aware of a defect that makes defect reporting. A two way street. If the contractor's team spots defective work, they should be issuing a notice to you. Likewise, if you use the subcontractor spot something that you know isn't right, you're obliged to tell the contractor. This goes back again to that idea of mutual trust. Especially if you're highlighting something that's wrong with your own work. You're saying, hold on, there's a problem before you go ahead and install something over the top of it. Let me put this right. You might even be highlighting defects in somebody else's work before you start your install over the top of it. Once a defect is notified, then clause 44 kicks in. There's a defect correction period.
Jacob Austin 00:21:22 That period is stated in the contract data. It might be 1 to 2 weeks, or it might be 24 hours. If there's something fundamental that's going to affect building users. The clock starts for each defect when it's notified, and the contractor will carry on notifying defects up until the defects date. That's often set as 52 weeks after completion. During that time, any defects that are found in your work must be corrected by you. Once the defect state is reached, then the contractor issues a defect certificate. That document states the status of defects at that point. Ideally, there will be no defects left to correct, but if there are outstanding defects that you failed to complete by the defect, state the defects certificate or list those, and then the contractor can either have them corrected themselves and recover costs or choose to accept it. And then there's another procedure to follow. So accepting defects is something that appears in the main contract as well. NEC4 acknowledges that sometimes the parties might decide not to fix a particular defect if it's minor or cosmetic, and fixing it might be more trouble than it's worth than maybe the client might live with it for a negotiated credit.
Jacob Austin 00:22:42 So clause 45 covers that scenario, allowing the contractor to propose to the subcontractor that the defect doesn't get corrected. The scope is then modified to allow that defect to stand, and then the client is credited to offset the piece of work not being done. You, as the subcontractor, can also suggest that essentially asking, do you really need me to fix this? Or would you accept it as is for a price reduction? Similar, but different is if you failed to complete a defect, and that could be because you couldn't get it done. It could be because you couldn't get access. Even if you can't get access to complete remediate to a defect. The client gets compensated. And the contract says that the contractor will assess the cost of an uncorrected defect and deduct it from payments to you, the subcontractor. And you might think, well, I understand that if I couldn't be bothered to fix the defect, then the client gets some money back to pay for it to be corrected. But if the client's Prevented you from completing that defect.
Jacob Austin 00:23:45 The same course applies. And what's happening here is the contract is saying if you were given the opportunity to fix that defect, then it would have cost you X amount, let's say ÂŁ1,000. So you would have lost ÂŁ1,000 to go in there and complete the rework. So because you've been prevented from doing that, you're in effect benefiting from that thousand pounds. But in return for basically giving you ÂŁ1,000, the client has to put up with a piece of defective work. So that doesn't feel fair, does it? So even if you've been prevented, the cost of correcting a defect would be deducted from your final payment. Now, from a practical standpoint, it's better to fix defects than to leave them, except for really, truly minor issues. Uncorrected defects leave a bad taste in the client's mouth. That's bad reputation for you and for the contractor, and failing to complete defect remedial is a surefire way to get yourself struck off the contractor's inquiry lists. Client satisfaction is probably the biggest metric for contractors these days, and anything you can do to help maintain that satisfaction to help make the contractor look good can put you at the top of the pile.
Jacob Austin 00:25:01 Quality management isn't the most glamorous topic, but it's absolutely vital for a successful project and for a successful long term relationship, both with the client and with your contractor. And now that wraps up today's episode on the general clauses, the subcontractors obligations and the quality management clauses from the NEC4 engineering and construction subcontract. So as I said, we've skipped over the program element and we're going to come back and look at that in next week's episode. So I hope to see you back here next week. And we'll be talking program compliance with NEC4 requirements. And in summing up today's episode, the clause is in. The ten, 20 and 40 series are some of the most fundamental to the subcontract. You've got that good faith framework, the requirements to act as per the contract, the instructions on how you deliver the contract, and the requirements to maintain the right quality as per the scope. Whilst we've not read out clause by clause, you should now have a reasonably detailed understanding of the expectations of you as a subcontractor working under an ex contract, and will be continuing the series to build on that further, with the 30 series clauses being the time clauses next week covering how the programme is managed with float delays and so on.
Jacob Austin 00:26:28 The 50 series, which is important to every contractors, shows because that concerns payments, and then the 60 series, which is all about compensation events and following that will likely wrap up with everything else we haven't covered yet. So tune back in for those deep dives. And thanks for joining me today. I hope you've got something useful out of today's episode. And if you do, then I really need your help to spread the word because I want to help the million SME contractors working out there in our industry to protect themselves, to become more profitable, and to understand the contracts that they're working under with plain English explanations of the detailed issues you're going to come up against as a subcontractor. If you want to learn more, you can reach out to us at. And you can also find us on all your favourite socials again at @QS.Zone. Thanks all. I've been Jacob Austin and you've been awesome.
