Most people didn’t get into the building and construction industry because they had a deep love of doing paperwork.
And yet when it comes to delivering a successful and profitable project, excellent contract administration can be the difference between a fantastic outcome and a mediocre one.
So while it’s not the world’s most exciting part of the construction business, if you are in the game for the long term nailing your contract administration habits down is critical.
What, then, are the non-negotiables when it comes to profitably administering a construction contract?
A Meaningful Contract Review
Even the most straightforward construction contracts are often very complicated.
A good contract review should offer you the necessary tools and information you need to understand.
In terms of administration, generally that is going to include a proper appreciation of:
- Making compliant progress claims under the contract;
- Qualifying causes of delay, and the process for requesting an Extension of Time;
- The requirements for variations;
- How to escalate disagreements; and
- Critical timeframes for all of the above.
While there are many other facets to a contract review, these five items are the core areas you need to be across for the day-to-day project. After all, it’s usually one or more of these areas where your profit gets eroded throughout the contract.
Proper Training
Having a quick read through your contract review and then simply putting it in a drawer until something goes wrong is essentially a waste of money.
Your time investment here will depend on the size and complexity of the contract. But as a general rule taking a bit of time with your project team to work through the specifics, address any questions, and clarify anything murky can offer a significant improvement in confidence about the project, and compliance with the necessary elements.
An Understood Chain of Responsibility
Your contract review and training process should clearly delineate responsibility.
Where are notices most likely to be received? Does the contract allow for email, hand delivery, submission via an online portal? Who is responsible for receiving, identifying and actioning notices of different kinds within the relevant timeframes?
What is the process where a site direction is given verbally, and who is responsible for making it happen? Who should communicate potential delays and who is responsible for producing the notices?
Who needs to be involved in pricing up a variation and what is their availability?
Bedding down your processes for dealing with notices and the individuals charged with making it happen avoids much of the last-minute flurry of activity that can sometimes occur.
More importantly, though, it can give you the confidence to know that your team is well armed and ready to go when it comes to protecting your profits and risks throughout the project.
A “Don’t Let it Slide” Attitude
This story happens far too often in the construction industry:
- Principal asks Contractor to do something outside the strict scope;
- Contractor could ask for a variation but decides not to in the interests of “preserving the relationship”;
- This happens a few times;
- At the final payment claim (or claim for return of a bank guarantee), the Principal identifies multiple defects, delays and issues and deducts a huge sum from the final claim;
- Contractor wishes they hadn’t let those claims slide, and now tries to bring them up despite being out of time to do so;
- A despite ensues.
Letting potential claims under the contract sail past unclaimed generally has no material impact on the relationship you have with your principal.
It does, however, have a material impact on your ability to make a profit.
A relentless approach to good contract administration will either resolve the issues quickly or preserve your rights, ensuring that if there is a bit of give-and-take later on finalisation, you are at least well-positioned under the contract.
This, of course, does not mean we are suggesting that maintaining a good relationship with your principal is unimportant. A good relationship can get you through many tricky situations, after all.
But ultimately giving up your contractual entitlements isn’t the way to maintain a good relationship. Instead that usually comes down to…
Effective Communication
Many disagreements tend to arise because a line of communication fails in some way.
Perhaps that was a poorly defined scope of work, a claim not properly made, or an unclear site direction. Perhaps someone expressed something in a way that sounded more contentious than it was intended to, which caused an emotional response which resulted in a secondary dispute.
Whatever the case, good communication can serve multiple purposes. First, of course, it can ensure that you are complying with the contract when it comes to variations, delays, disputes and notices generally.
Done right though, proper communication decisions can also preserve or strengthen the relationship between you and your principal’s representatives.
So whether you’re asking a question, sending an update or making a claim, consider the overall impact of how you’re saying what needs to be said. Is it aggressive or neutral? Is it formal or informal? Is it friendly or unfriendly? And whatever the answer, is that what was intended?
The mode of communication also makes a difference here. If you’re sending a notice of claim, would a phone call first be a good idea? If you receive a serious text message are you best to text back or send an email instead?
So be a little intentional with your communication, even (especially!) when you’re busy. A small amount of extra time and thought can have a significant positive impact.
Profit Matters
While we all tend to focus on the big-ticket items and risks in construction, it’s often the little things that eat away at your margins throughout the course of the project.
Incorporating these elements into your business habits can help plug those gaps and protect your downside risks. Of course, if you’re embarking on a new project and need help with these steps, we’d be happy to lend a hand.