Jacob Austin 00:00:00 Hi all. Jacob Austin here from QS.Zone and welcome to episode 133 of the Subcontractors Blueprint, the show where subcontractors will learn how to ensure profitability, improve cashflow and grow their business. Today's episode continues our JCT subcontract mini series, and it's focusing in on the ten most dangerous amendments that main contractors make to JCT subcontracts covering what they are, why they matter, and how to negotiate your way out of them before you sign. So let's dig in. Now, most of contractors know they're working on a JCT subcontract, but what few of them realise is that the document they've been handed to sign often isn't a JCT subcontract in any meaningful sense. It might have started as one, but by the time the main contract is legal or commercial, teams have finished with it. The standard protections have been subtly removed, some of them not subtly removed, and the risk profile has been fundamentally changed. And what's left looks like JCT on the cover, and it reads like something completely different in the clauses that matter. So today's episode is about opening your eyes to the kind of amendments that contractors make to subcontracts.
Jacob Austin 00:01:38 To give you a good idea on how and where the standard form gets weaponized against you. So I'm going to talk you through ten of the most dangerous amendments contractors regularly insert into subcontracts. These aren't hypothetical. These are amendments that cause delayed payment, lost entitlement, uninsurable liability, and in the worst cases, Businesses, businesses that don't survive a single bad project. And here's the point that I need to take really seriously before we go any further. If you start on site before you've read and understand every amendment to that subcontract, you may be deemed to have accepted those terms by your conduct. The court consistently holds that performance of a contract can constitute acceptance of its terms. So the time to fight those clauses is before you pick up a tool and not afterwards. Just a reminder that the two forms that we're looking at with this mini series are the standard building subcontract, and the design and build equivalent. The standard form is carry a reasonable commercial balance. They're not perfect for subcontractors, but they contain statutory protections, reasonable payment timelines, and defined processes for recovering time and money.
Jacob Austin 00:02:55 The problem is that main contractors are not obliged to use any standard form, and certainly not an unamended one. They can and do insert bespoke amendments. And those amendments override the standard clauses. Your unamended copy of the JCT standard tells you exactly what your rights would have been, and then the amendments vastly alter them and tell you what your rights actually are. If you don't have a copy of the unamended standard form, then you need to get one. Without it, you can't identify what's been changed. So you potentially signing something without a baseline, without a true picture of what it means. And of course, that is commercially dangerous to do. So I've got to urge you to get hold of that standard copy, and that will make the amendments make sense. Now, in researching this, I found countless amendments made by main contractors. Some lists of amendments are as long as the subcontract started itself and effectively completely rewrite it in a no clause left untouched. Fashion. So what I've tried to do here is pick out ten themes that regularly get picked on, that have got particularly large implications for you as a subcontractor.
Jacob Austin 00:04:11 So let's start with amendment one, which is pay when paid and pay if paid clauses. This is something that the Housing Grants, Construction and Regeneration Act that we all know as the Construction Act makes largely unenforceable. Payment to you cannot be conditional on the main contractor receiving payment from the employer except in a genuine insolvency situation. But some main contractors still push pay when paid and pay if paid language into their amendment, and pay if paid is an even harder legal condition to satisfy. Some contractors try to use weasel words to add amendments to achieve a similar effect without using that all important trigger phrase. So watch out for the wording and see what it means. If your subcontractor starts tying your payment in any way to an upstream event, then get it reviewed. This is one of the most serious amendments you'll encounter, because it may prevent you from being paid at all. Amendment two is the most common. Extended payment periods. The standard form sets out defined payment notice timelines, and the Construction Act sets minimum standards.
Jacob Austin 00:05:26 But with those minimums, there is room to extend the final date for payment significantly, and at the same time, they often move the notice back to give themselves as much time as possible to make their assessment, and it gives you the least amount of time possible to challenge the payment notice. If you feel like it's unfair, it's not uncommon with some of the major players to see subcontract final payment dates extended to 60 and 90 days and even longer. It can be legally compliant, but commercially that's a cash flow nightmare. You're effectively funding the project along with each of the other contractors on the job. But it's a false economy because what they're actually going to do is pay you a premium if you clock it up front for that funding, which is why it's absolutely crucial for you to know what your financing exposure is before you sign your contract, before you price the work. Even that means identifying the actual final payment dates upfront so that you can cast it in or negotiate the period down. Amendment three removal or restriction of your right to suspend under the Standard Form and the Construction Act.
Jacob Austin 00:06:39 You have the right to suspend performance for non-payment, giving seven days notice. That has real commercial leverage, but many main contractors either remove it entirely or load it with conditions, for example, that you can't suspend while any pay less notice is in dispute. Those conditions can effectively neutralise your ability to act and you need to know this. So you need to know about this before you need to rely on that clause and use it. The Construction Act contains implied terms, meaning they will apply to any contract if they say something else. But that isn't going to stop the contractor trying. They'll make that amendment, they'll try and enforce it, and they might even put you to a legal test, let you take them to court before you get your hands on your money. The smart thing to do here is to call it out before you sign up to the contract. Tell them that's in a legal position. They'll probably quite sheepishly back down from it. It's much easier to do it then than it is whilst they've got you by the short and curlies wanting your money.
Jacob Austin 00:07:43 Amendment number four widened. Set of rights. The standard form limits what can be deducted from your payment to notified sums under a valid pay less notice. Amendments can introduce wide contractual set of rights, sometimes across multiple contracts with the same main contractor, sometimes for on liquidated claims that haven't even been formally valued. Every invoice you raise becomes exposed to deductions that have no defined ceiling. If you see a broad set of language, you need to get it scoped down to just notified and quantified sums specific to this subcontract. Amendment number five. Short notice periods and time bars for claims. This one costs more money than almost any other amendment because it just works silently. The standard form requires timely notice for loss and expense and additional time claims. Amendments can heavily compress that window, sometimes to 5 to 7 days from the event. If you miss that window, then the entitlement is gone, not reduced. Gone. And those time bars are enforceable. You won't recover money in an adjudication if you didn't serve a notice.
Jacob Austin 00:09:00 The only defense is a robust site level notice regime from day one, where you notify absolutely everything that could cause you delay. If you point that out to your contractor, that they're effectively forcing your hand to have to pick up the pen and write them notices about absolutely every tiny little incident in case it turns into a big issue, and that you need a bit of reflection time beyond 5 or 7 days and turn the table on them and say, do you really want that? Do you want letters every day saying, I didn't get this section released to me the day I was supposed to be on the program and so on. Put something pragmatic in place for both of our sakes. Amendment number six main contract liquidated damages flowing down. The standard form looks to include a defined LED rate specific to your subcontract works. Amendments. Replace that with the pass through of the main contractor's full LED exposure under the contract. That figure is often many times larger than anything proportionate to your package. More importantly, it often has no cap.
Jacob Austin 00:10:11 Your delay, real or alleged, becomes exposure to a liability calculated by reference to a contract that you've probably never seen against a completion date. You've got no hand in setting. You need to push here for a defined, proportionate rate tied to your scope only. Amendment number seven. Practical completion linked to the main contract on a standard subcontract. Your practical completion date is when you achieve practical completion. The defects liability period starts, then retention becomes releasable. And lads, stop running when your works are complete. Amendments link all of that to the main contract. Practical completion a date determined by the employer and by the main contractor, which may be months or even years after your work is finished. You sit there with no retention, exposed to LEDs on a completed package, waiting for a program that you can't influence. You can calculate a cost associated with this with the loss that you'll incur for waiting for your attention. If you quantify that and put it as an option or some below the line and say unless you change the definition, you'll need to pay me this much money, it makes it clear to the contractor what that amendment is doing to you and gives you an angle to negotiate.
Jacob Austin 00:11:35 Amendment eight retention. All manner of following games gets played with retention. The standard form includes mechanics for retention release. Once you finish the works, some forms even include provisions for the retention to be held in a trust fund, to give added protection that you're going to receive your money. Amendments regularly remove those protections and also tie tied the release of retention to the main contract funnel account, which on complex projects can take years to get to the bottom of your money, then sits in the main contractor's general fund, unsecured and at risk if they become insolvent. The Carillion collapse is a prime example of when that consequence turned real for thousands of subcontractors. It's not just theoretical. You may not be able to negotiate trust fund protection, but as a minimum, the release of retention should be governed by your own completion. Otherwise you're seeing a return of that pay. One paid practice that we already know is illegal. Amendment nine deletion or narrowing of relevant events. This is a regular minefield. The standard form contains a defined list of relevant events, the circumstances that entitle you to an extension of time.
Jacob Austin 00:12:56 That list exists because delay on a construction project is rarely caused by a single party, and sometimes not by a party at all. As employer caused delays, exceptionally adverse weather interference for my favorite service providing friends the statutory undertakers those risks. The standard form recognises as legitimate grounds for additional time and in some cases, additional money. Amendments often delete items from that list of entitlements. Sometimes it's one, sometimes two. Sometimes wholesale. The commercial consequence is immediate and it has a double edged blade. Without irrelevant event, you can't obtain an extension of time without an extension of time. LEDs continue to run against you for delays that you didn't cause. And in most subcontracts, your ability to recover loss and expense will flow from a similar but reduced list of events that are also grounds for an EOT claim. Remove that relevant event and you're losing both the time and the money in a single stroke. Look specifically for amendments that delete employer risk events, exceptionally adverse weather and delays caused by statutory undertakers. Those are the ones most commonly stripped out.
Jacob Austin 00:14:20 If they're gone from your subcontract, then your carrying program risk for events that the standard form would have recognized as outside of your control. That risk could be massive, and it actually points to the return of an old fashioned principle, which is time at large. This used to happen before there was an extension of time provision in contracts, and what that principle meant was based on the prevention principle. If the employer has prevented the contractor from finishing the job, then the employer couldn't enrich himself by then, charging the contractor. Lads. When time becomes at large, all your obligation to do is finish the job in a reasonable period of time. It's a concept that's been arguing about time and time again in the courts, and it's why all of the contracts feature specific mechanisms for extending the program, if necessary. Amendment ten ground risk and unforeseen physical conditions. This amendment doesn't modify an existing clause. It introduces entirely new wording that has no equivalent in the standard JCT contract, and for ground workers, piling contractors, civils packages and drainage contractors.
Jacob Austin 00:15:37 It's the most dangerous amendment on the list. The wording typically requires you to confirm you've visited site, you've investigated everything, and you're satisfied with the ground and physical conditions on site signing over acceptance of all risk of those conditions, including conditions that could not and were not known about at tender stage. Any additional time or money required as a result of those ground conditions is often expressly excluded as well. So think about what that means in practice. You're being asked to carry the financial consequences of something you can't find out. You price on the information available at tender stage. You might have even reviewed a ground investigation report, but ground investigation reports have limitations. Their points in time, their specific locations on site that have had boreholes taken and their caveats themselves. They don't and can't guarantee exactly what sits on site between the boreholes, or what changes across the full extent of your work. When you hit contamination, you don't know is there obstructions that aren't on any drawing groundwater levels that are different to the desktop study all made ground where the report said it should be natural under this kind of amendment.
Jacob Austin 00:17:05 You've got no right to claim for them the cost, the program and the risk sit entirely with you. So if your package has any interface with the ground at all, this kind of amendment is an absolute red flag. It needs to be negotiated out entirely. Failing that, a meaningful contingency needs to be put against it or walk away from the job. Those are the three options. The fourth option, where you sign it and hope for the best, means you losing money. Those are my top ten amendments with the biggest potential to hurt you as a subcontractor. I could go on here and mention design liability, but we did cover that back in episode one, two, six and specifically the shift from reasonable care to fitness for purpose and what that means to your P.I. cover the commercial exposure on design liability is significant enough to deserve its own focused episode, so that's exactly where you'll find that information. There are other nasties to watch out for. But what I've tried to highlight here are some of the potential issues you might encounter now.
Jacob Austin 00:18:15 Subcontractors get caught out by amendments all the time, and the most common failure is not reading them at all. The subcontract lands with a covering letter saying please sign and return and it gets signed because the Giovanni's to start or you can't get paid until you've signed and returned it. It's kind of understandable, but doing that is a decision that loses the most money on the most projects. If the contractor can't pay you give them a seven day notice and pull off site. You'll soon find out how quickly they can get cash into your bank account when their programs are at risk. The second biggest failure that subcontractors make is reading the amendments, but not having the standard form to compare against. You will see in several places clause reference x point x x deleted. You can't spot and understand what's been removed if you don't know what that deleted wording is. What I do when I'm reviewing amendments is I have on one screen my standard document and alongside it on a second screen, my list of amendments. I flick back and forth between the two.
Jacob Austin 00:19:24 To understand what's going on, that's the level of detail you need to go into. The third most common failure is assuming that because it's a JCT, that standard protections apply. I've said this before. The most dangerous subcontract is the one that you think you know, in all likelihood. Those standard protections won't apply. They'll have been deleted, modified, changed. Some of them might apply if amendments haven't displaced them altogether, but the amendments will almost certainly have deleted the ones that matter the most. So how do you protect yourself from the massive risk shift that the contractor is trying to force you away? The first step is to read the amendments before you sign anything. You should receive the full terms and conditions whilst you're pricing the job, and that's really the best time to understand what you're getting into. At that point, you can price the risk if you accept it or caveat your bid. One of the most sensible things you can do when your bidding work is to include a statement that says, my tender is based on the standard wording of the JCT 2024 subcontract, whichever edition it is that the contractor proposes, that will cover you.
Jacob Austin 00:20:39 If you haven't got time to read the amendments during Tender stage. But absolutely, before you put pen to paper, you need to read them. The standard form is your baseline. Compare what you've been sent against it to understand the changes, because every departure is a commercial risk that needs a decision it has implications for you when you find a dangerous amendment. You write to the main contractor and propose revised wording or you reject it altogether. Do it formally before you start. A good approach is a track to changes red line of the subcontract. That can be a legitimate commercial tool. At the end of the day, you're a business, not just a trade. If the main contractor refuses to negotiate, then you have a choice. You accept the risk, you price it in, or you walk away. None of those options are comfortable, especially if you need work. But all of them are better than discovering the risk on site. After you find out that that risk has been put in your back pocket, if you do start work before the subcontract is finalized, which can happen despite everything, make sure you're operating under a letter of intent, clearly defined with commercial terms, and that you're not doing anything that could be read as acceptance of unamended terms that you haven't agreed to.
Jacob Austin 00:21:59 I'm just about getting to the end of my notes for today's episode, so let's just have a sum up of what we've covered. The main takeaways here. Main contractors routinely amend JCT subcontracts in ways that shift significant financial risk onto you, the subcontractor. These amendments are enforceable if you sign up to them. The ten most dangerous areas we've covered today are. Pay unpaid extended payment periods, removal of suspension rights. Widened set of time barred notice provisions. Main contract led pass through practical completion being linked to the main contract. Amendments to release a retention, deletion of relevant events and ground risk transfer. A reminder that we specifically covered design liability, which is another area that's commonly amended. You can find the detail on that in episode 126. The biggest takeaway I want you to have from today is that you need to read your subcontract. You can't identify what's changed and understand the risk that you're holding if you don't do that. Are you also going to need the standard form of subcontract the unamended version? Get one! Starting work on site without reading and challenging the amendments.
Jacob Austin 00:23:18 May constitute acceptance of those terms by conduct and before you start, is the best time to challenge them, because the contractor will be under pressure to get things moving on site. You've actually got some good negotiating power at that point. That's when you negotiate before signature, not after the event. You may have been through years of trading and not had to rely on a subcontract, because all of your jobs have gone well. But I'm here to tell you, at some point there will be a problem. You'll have to rely on terms and conditions, and that will bring with it a world of pain. If you haven't read them, negotiated them, and got them right before you get to sight. Now, 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 episode, 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 00:24:17 And of course, subscribe yourself if you haven't already. And thanks for tuning in. If you like what you've heard and you want to learn more, then please do find us at www.QS.Zne for more information. And 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.
