Jacob Austin 00:00:00 Hi, all! It's is Jacob Austin here from QS.Zone. And welcome to episode 132 of the Subcontractors Blueprint, the show where subcontractors will learn how to ensure profitability, improve cash flow and grow their business. Today's episode is continuing our GT mini series, and it's focusing in on one of the most important processes. And I'll be bringing that to you in the form of ten mistakes that regularly get made, and ten positive actions that you can take as a subcontractor to get your hands on your money. So let's dig in. For some subcontractors, the final account is a bit of an afterthought. They don't often submit a proper final account and just treat their last application for payment as if it is their final account. Ignoring the concrete processes set out in the contract, often just turning up at a final account meeting with a number in mind and pointing at their last application. And the final account isn't a meeting, it's a leverage fight. It decides what you actually bank and what you then have to write off. And the people who get hurt are always the same.
Jacob Austin 00:01:28 The subcontractor who hasn't structured their claim, hasn't built the evidence, hasn't followed the timing because usually coming to the back end of a job, the contractor is feeling the squeeze of a build up of variations, and they're under pressure to maximise the margin that they're walking away from the job with. So they're not just turning up, to be fair, they're coming with withholding weapons, missing close out payments. Lists of defects that you haven't dealt with and late contra charges. And if you don't control your part of the process. You don't have any control over the outcome. Under the JCT 2024 standard subcontract, the final account outcome is built from the machinery you've been using all the way through the job. The valuation of variation rules in section five. The payment and notice engines in section four. Loss and expense. If your regular process has been effected and the final adjustment and final payment mechanism. So when a contractor says let's just agree a final figure, what they're really saying is let's step away from the contract process and negotiate on my terms.
Jacob Austin 00:02:37 And that's why you get squeezed. Turning up at a meeting half cocked with limited preparation is soft, but a clause backed position served on time with all the necessary records is rock solid, right? Let's start with some do's. Do number one build your final account proactively as you're running account, not a closing argument. This is really good practice. You can really easily do it. Bolting in a back page to your application showing a running final account. Start it at month one with your original some adding in variations, day work, lesson expense, and any country charges that you acknowledge as you go. Update it every payment cycle. It's minimal admin to copy and paste or tweak the adjustments that you need to do each period, and it always ensures that you're ready for a final account when you need to be. Build your proof, records of instructions, variation, quotations, day worksheets, and so on. The payoff is that you arrive at the closeout meeting with the position that looks inevitable, not negotiable, and for added gravitas and professionally, add in the clauses that entitle you to charge the various amounts that you're including do.
Jacob Austin 00:03:54 Number two is to treat your application like it will be read out in an adjudication. Make your variations clause compliant and self-contained, so that nobody's having to run off and find various bits of detail about what's changed and why this sum is due. This, again, it's something you can do every time you submit a variation, not just at the end. Collect your proof. Signed day worksheets. Marked up drawings. Site instructions. Photos. Delivery tickets. Agreed measures. All of these are part of the picture that if you collect them at the right time, the payoff is that the contractor has got nowhere to go. They can't even say there's missing paperwork on that day that you ask for the money. Do. Number three is another proactive action that you can take to lock in variations early. You want to price the change whilst it's fresh in everybody's mind. So for each variation, once you've been instructed, you quote it. You track it on an agreement tracker. If they don't agree it, keep it live and keep the evidence there.
Jacob Austin 00:04:57 But you want to do this early after the instruction, before the work disappears behind some other piece of finishing work. The best time to deal with it is always now. It removes the contractor's favourite final account. Defence will sort the variations at the end. They probably do that because they help. You'll forget some of the detail and not charge as much as you could have done. Do number four is the absolute biggest piece of advice that I can give you, which is to submit a proper final account document that calculates exactly what you should be paid. This links back to number one, because you should start doing this right at the beginning, so that nobody's surprised about how much you're asking for. But a final account should be a clean and clear one page if possible calculation starting with your subcontract sum, omitting any provisional sums and then adding in each variation number, description, amount, due loss and An expense day works and any other little bits that you're due. As in if there are inflation adjustments, other incentive payments.
Jacob Austin 00:06:05 Put those next. Then acknowledge any genuine contra charges and deduct any discounts. The sum of all of that is your final account sum. You don't pay any attention to retention. That's just part of what you're due to be paid. So once you've made that sum clear the final account sum, you make one final calculation to deduct what you've already been paid to show the amount due. And that's it. I can count on one hand the times that I've received a final account in that format from a subcontractor in 18 years. In fact, I can count it on two fingers if I remember right. That's your final account calculation. You back that up with all of the ancillary calculations, your variations, your loss, an expense build up, your schedule of day work, and so on. This forces the conversation into discussing items, not opinions. You completely remove the contractor's ability to say that number feels too high because you've got the detail. Do number five. Do a forensic variation troll. Make sure you've included everything.
Jacob Austin 00:07:12 This is your chance to get everything that you're due on the table and make sure you get paid. It's worth doing a variation sweep across the whole job to check that you're not missing anything. If you've been proactive, then the chances are that you haven't, but it's still worthwhile checking that each instruction has got a priced variation against it. RFCs and responses have got any implications priced. Check the drawing revisions to see that work instructed under an issue drawing has been priced and captured. Site meetings were any instructions given and are evident in the minutes. And have you picked them up? This is where you stop leaving money behind because missing variations won't be found by the contractor at the final account meeting. They'll just be handily forgotten about, and it will be your donation to the project by not getting it on the table. Do number six. Maximize what's legitimate. This means applying the valuation rules properly so you're valuing each item using the correct approach to strike that balance of what's contract reasonable and technically able to be defended.
Jacob Austin 00:08:23 I've mentioned valuation rules before, but briefly that means using rates and prices from the contract where the work is the same pro-rata paying them if it's of a similar character, but the conditions are slightly different, or there's a slight tweak to something that's almost the same where it isn't similar, you're building up a new rate. This means doing a proper assessment of labour, plant materials, waste access, productivity impacts and demonstrating that you've calculated it properly. Don't let the contractor blend everything into the nearest lowest rate if the conditions are genuinely different. It's quite common. This, again, is something that you can do proactively as you price each variation, but it's worth me mentioning it again here. Maximising what's legitimate doesn't mean inflating everything, it just means not self discounting. Before the contractor has tried to negotiate you down. Do. Number seven is to protect your time relentlessly because late, as far as the program is concerned, is where deductions start to breed. That means throughout the job you need to be thinking about serving notices, capturing delays, and if there's a cost impact and you're entitled to charge it, that you're proving that link between the cause and the effect to justify your claim.
Jacob Austin 00:09:42 Proof on this might look like weekly diaries, revisions of the program, progress photos, instructions that prolong you being on site, response times for other contractors, rice and other communications. This will reduce the contractors ability. Say you are late and therefore we are deducting X, which if you haven't extended your time throughout the contract, there is a danger that they will do that, particularly if the job is late and they are under pressure to minimise subcontractor costs because their own prelims are running out of hand. Do number eight consider work that you haven't finished yet. If you're asked for a final account and measures haven't been finalised, progress is still happening. There's some instructions bouncing around. Remember that these need to be charged for. Include them in that proposed final account. It's easy to forget the work needed to close out the job, especially if the measures are heading north of where they started on a measurement contract. An easy mistake to make would be just to include the balance of the quantities on each line of the order, rather than forecasting where you think it's going to end up an interim final account.
Jacob Austin 00:10:54 Might be an anchoring tactic from the contractor to try and get you to put on the table a number before the end of the job that they'll then try and hold you to. By the time you're finished. So your reverse tactic to this is to anchor it where you think it needs to be. Linked to number eight is number nine, which is running a closeout deliverables checklist or a program like it's part of your work. This is relatively easy for you to do, and it takes away some of the contractor's ability to knock back your final account assessment because they say they haven't had anything from you yet. So that means including things like rams as billets, warranties, test certs, training, commissioning evidence onto a tracker, putting against IT owners, and dates stating on there. This will be provided when X piece of work is finished. You probably want to start doing this from, say, middle of the job onwards, not waiting for practical completion. It stops the contractor from inventing any missing paperwork arguments on the day that you're asking for your money, and quite often, an amount of the final activities.
Jacob Austin 00:12:02 The testing and commissioning will prevent you from submitting certificates, but having clear evidence of when they're going to be provided makes it absolutely clear what you're waiting for, and the final account shouldn't be held up on some technicality. And finally, do number ten separate defects allegations from entitlements to deduct by the contractor when defects are raised, as were particulars locations spec breaches, evidence. If it's down to you, you front up and get on with it. Take the powder out of the contractor's gun. You might want to consider settling up direct with any other subcontractors. A defect effects. Let's say you've got a dodgy piece of ducting behind a ceiling. And to put it right, you're destroying that ceiling for somebody to come in and fix it later. There's no reason that the contractor even has to get involved in that, and it's probably going to be more cost effective for you to go direct to the plastering contractor and say, sort this for me. We'll settle up between the two of us. It's a really mature way to approach defects and avoid contra charges.
Jacob Austin 00:13:12 It stops the contractor from being able to ambush you with contract charges, and include all of their ancillaries on top of it. Site management time, bits of access, or whatever that they've provided minimizes your liability. On top of that, it's proactive. It's hassle free for the contractor, and it will stand out in their mind because not many people do it. And it's a simple tactic you can use to earn yourself some extra brownie points whilst you're helping yourself to a lower cost. Anyway, so that covers ten do's. Let's have a think about ten don'ts. Mistake number one and one of the biggest is turning up with a number in mind and little else, a headline figure and no structure. With an idea of what your last application was and an expectation that the contractor knows what you've done and they'll find a fair way to settle up for it. There's all manner of reasons not to do this. You'll likely miss variations. Forget about entitlements be dealt with late because you haven't submitted a proper final account form.
Jacob Austin 00:14:16 Not to mention that the contractor will quite happily slice you open item by item, and you won't have a lot of defence to it. The fix for this is to lead with that one page calculation that we discussed earlier, and have numbered back up, forced the discussion into an item by item, some up backed with logic, backed with calculation, and hard to screw down don't. Number two is to miss the timing of your final account. This is your last chance to get everything on the table and to get yourself paid as quickly as you can now. The due date for final account is one of those places where amendments to subcontracts regularly get made, so you're going to have to dig out your document and see for yourself when you need to submit. This is ultimately going to affect your cash flow, so it's in your best interest to be early, not late, with submitting your final account. Don't. Number three. Don't let variations pile up into a final account problem. It's a massive mistake to wait until the end to start pricing variations.
Jacob Austin 00:15:23 We'll sort it later. Later is a recipe for commercial horse trading, not proper valuation of how much changes are worth. This is the opposite of one of the do's of quoting, promptly collating the evidence. Keeping a tracker and knowing where you're at. It couples with the next item. Don't. Number four. Don't do day work without a daily paper trail. This is another thing where you can't collate the evidence. Later, you can't go back and ask the foreman to come and have a look at a piece of work to verify how many men are doing it, to verify what plant you're using, to see how much material you've used. Day work with poor substantiation gets reduced to nothing because it's easy to attack. The fix for this is really simple. It's an easy to produce day worksheet. Get it signed daily with an allocation of labor plant materials, and preferably get one of your lads to take photos of what they're doing on day works so that it can't be argued about later. Don't. Number five don't accept missing paperwork as a reason to hold back payment.
Jacob Austin 00:16:31 Keeping your payment hostage is something the contractor will be more than happy to do. If you haven't provided O&M information. Golden thread details commissioning certificates. The common excuses are it's just rams. We'll do them after. We'll do them later. The commercial consequence of that is that the contractor weaponize it against you. They say you're not entitled to submit your final account until you've submitted all of the completion paperwork. It becomes a stall that puts a hole in your cash flow. It puts undue stress on your business for the sake of administration. Don't. Number six, don't accept late contra charges without a challenge. This is a regular one from main contractors at a final account meeting. They hit you with contra charges that you've never seen before. No backup. Big sums that they're deducting from your total without a buy or leave. If you're in a final account meeting and this happens, the meeting is over as far as I'm concerned. You don't accept a thing. If you want to be a little bit more friendly, then entertain the conversation and say you can't accept it until you've got crystal clear particulars.
Jacob Austin 00:17:43 Causation, evidence of cost before you'll entertain a deduction, they might well have a point, but have they articulated an argument in the same way that you would expect to justify a loss, an expense claim? You expect them to justify a deduction, a contra charge from your account. Contractors are very good at spinning this into an argument that you start responding to on the fly, and before you know it, you're acknowledging some legitimacy and walking away with less than you deserve. But by rights, they should be giving you notice. They should be making you aware that the contra charges are coming, and they should be furnishing you with a document to prove every penny that's gone out of their pocket before they can deduct it from you. Don't. Number seven is linked to that, but different. Don't ignore pay less notices and hope that a final account meeting is going to fix it. If you get into a late situation, if you've got rework and it's causing consequential work for others and you're issued a pay less notice, just leaving that to linger silently almost allows that notice to become the commercial baseline to anchor the account with those deductions in it.
Jacob Austin 00:18:53 These kind of Payless notices are your clues that something bad is coming. Act on them. Respond to them firmly in writing with evidence to the contrary. If you've got it, this is where you need those all important records that I mention. Time after time. A simple holding response saying you don't accept it and that you'll respond in due course when you've gathered the details, is better than nothing, but absolutely make it clear that you don't accept it. If it's too big for you to handle, this is the time to get somebody involved, to give you advice on the process and to help you defend your case. But this is a fight fire with fire moment, not a bury your head in the sand moment. Similarly, don't. Number eight is don't let late completion go unchallenged. This is a mistake that loads of subcontractors make, not protecting the time they have to complete the contract work. If all the subcontractors on the project are delayed by a common issue, by the contractor or by the client, you still need to obtain a proper extension of time.
Jacob Austin 00:19:57 Often these kind of things happen early doors or midway through the job whilst the design is being fleshed out. By the time you got to the end, everything is forgotten about and the contractor is there trying to save face, trying to save bits of margin where they can, and apportioning blame all over the place. That early issue is forgotten about and all they point at are areas where you didn't finish on time. They line up all the facts and compare them back to your original completion date, as if that delay never happened. Because on paper, if you don't obtain that extension of time, that's the only thing they can do. Compare back to the original completion date. So go back a couple of episodes. Listen to my narratives on extensions of time and loss and expense. Protect yourself. Get your hands on delay costs if you leave it to final account, you've left it too late. Don't. Number nine is something that hits you right at the end. Snags. Don't let defects hit you with a vague narrative.
Jacob Austin 00:20:55 Now we'll sort the snags out with no classification, no ownership, no care as to whether you've caused the damage because you don't want to fall out with the contractor. Defects list can turn into deduction lists, and the contractor will adjust your account for everything that you haven't put right. I've seen before where people didn't address defects. And so a professional snagging contractor has come in, gone around tweaked doors to make sure they're hanging right, patched bits of plasterwork that had been scuffed and damaged made good painting, carried out cosmetic repairs like French polisher style, all under one contractor's banner. And then guess what? The contractor didn't swallow those costs because they saw it as the most pragmatic way through. They shared them out across various members of the supply chain so that they weren't holding the loss. But all it meant was subcontractors that hadn't addressed their defects in a timely fashion were penalised. Maybe there's some merit to doing that, but it cost a hell of a lot more money than the subcontractors themselves put in them, right? If they'd done it on time.
Jacob Austin 00:21:58 Not addressing your snags and defects is a surefire way to line yourself up with deductions from your final account and final don't. Number ten is don't go into the final account without a plan to escalate things. By escalating things, I don't necessarily mean picking up the phone to a claims consultant and taking the thing to adjudication. It can also be a long game forming relationships with contracts, managers, operations directors, commercial directors. And then when you get to the right point, if you feel like you're being treated unfairly, you can lean on those relationships that you formed to get a better outcome. Now, ultimately, all you're looking for is to be treated fairly in a final account and you'll know before you get to final accounts stage how the contractor is dealing with you, and you have to change your tactics to suit. You'll get some contractors that will challenge every variation as it goes through. They'll make sure they're paying a fair price for every little change, but by the time you get to final account, the arguments have already been had.
Jacob Austin 00:23:02 There's no big battle. You can quite reasonably agree on answer because they know, and you know that throughout the job they've paid a fair price, not necessarily a penny more than a fair price, but it won't be much less either. And then you'll get some other contractors that don't really engage with the change process. They'll instruct things, they'll pay for variations on an interim basis. And then towards the back end of the job, they get the sword out. They've had enough with everything creeping up, and they start fighting to press it back down again. But you all know what your cost is. You'll know how much money you want to walk away with in margin, and you'll know to what extent you've built up your account beyond those numbers. And that information needs to play a part. When I say don't go into the final account without the plan to escalate, because whether you feel like you can walk away with a reasonable return is what's going to inform that decision to either escalate the situation or compromise and come to an agreement.
Jacob Austin 00:23:58 Only you can work that out, but you absolutely need to know before you get into that final account position. Ultimately, the best strategy with the final account is to address it as the job progresses. Keep finalising variations throughout the job. The final account isn't one at the end, it's one with that discipline. Submitting notices on time. Putting structure into your evaluation so that it's clear where your account is heading, evidencing changes and getting fair agreements to them whilst everybody has got the details in mind, whilst they can go and look at exactly what you've done on the site, and that way you can walk into your final account meeting fully prepared. You know how you've valued each change. You're confident on which ones you've agreed, which ones are still up in the air. You're limiting the argument to a smaller number as possible, making your final account figure seem more inevitable than arguable. And the best contractors to work for will also appreciate that stance because they want certainty themselves. They want to agree things as they go along.
Jacob Austin 00:25:01 They want to know where their outturn margin is heading. What they don't want is to get to the end. Have a big surprise because you've suddenly decided you've not made enough money. And so you come cap in hand with a big claim to set the scale straight. If you do that, you've already lost so thoroughly encourage you. Listen again to the dos. Be proactive about managing your account, about obtaining agreements as you go, and that should make the final account process a doddle. So I hope that helps you to avoid some of the pitfalls of final account processes, and that adopting some proactive behaviours early on in your project and playing the game with that end goal in mind is what's truly going to help you to master the final account process. Thanks for listening. My mission with this podcast is to help the million SME contractors working out there in our industry. If you've taken some value away from today's show, then I really need your help to share the show and pass that value on to somebody else who'd benefit from hearing it so that I can help as many people as possible.
Jacob Austin 00:26:04 And of course, subscribe yourself if you haven't already. Remember, if you like what you've heard and you want to learn more, then please do find us at www.QS.Zone for more information or we're also on all your favourite socials again at @QS.Zone. And remember, miss the contract detail and the commercial risk falls on you. Thanks all. I've been Jacob Austin and you've been awesome.
