Protect your supply chain – and your project

We asked C-Link director Chris Barber for tips on how developers and main contractors can support their subcontractors, as construction projects fight to get back on track.

Although most construction sites are back in operation now, post-Covid, industry pundits are warning of tough times ahead.

“My concern is the unwinding of Government support for business and wider realisation of the economic challenges the country faces will put many organisations under significant financial pressure,” says Chartered Institute of Building (CIOB) president, Mark Beard, and chairman of Beard Construction, in a recent LinkedIn post.

Maintaining sufficient cashflow is undoubtedly a challenge for contractors of all sizes, as they come out of furlough with the need to pay for materials and labour, with the risk of lower productivity due to new, Covid-safe working procedures. The costs of any company going out of business are huge and far-reaching – for the individuals involved and their families and for the projects, suppliers and customers affected.

But there are steps that those responsible for managing projects can take to help protect their subcontractors – and their projects – in these challenging times:

1 Keep an eagle eye on performance

One of the first signs that a subcontractor could be struggling is a drop in performance, says Chris. If they start missing deadlines, pulling people off site or being less responsive to you, it’s time for a frank chat.

“I would ask questions like ‘What can we do to help you?’ or ‘What are the barriers?’,” advises Chris.

If the problems are financial, there are ways that a main contractor or developer can help, such as paying for materials on delivery or moving to bi-monthly payments. “I have seen the problem where contractors cannot feed their guys with enough of the products they need to fix at an efficient rate quite a few times,” says Chris.

Mechanical and electrical contractors are at the highest risk, says Chris, as they are assembling literally hundreds of components. Dryliners also require multiple products. Problems with just one supplier could put the whole package in jeopardy.

2 Pay on time

Organisations like the CIOB and the Construction Leadership Council have been urging main contractors to pay their subcontractors within 30 days. This doesn’t just make moral sense – it makes financial sense too.

One of the reasons why subcontractors may not be paid promptly is that their applications for payment are often difficult to process. Some of the issues Chris has come across include naming or grouping works in a different way from the initial order; getting dates or values wrong; failing to understand cumulative and interim values; and including little or no detail for variations.

Chris’ response to indecipherable applications for payment was to draft up a dummy payment notice to show contractors what information is needed and how it should be presented. Including instructions, drawings, emails and photos related to variations should make it easier for the QS responsible for issuing payment notices.

3 A clean site is a productive site

A clean and tidy site always promotes better productivity. With the added challenges of social distancing and new sanitisation regimes, this is truer than ever.

Think carefully about new systems such as temperature checks, hand sanitisers or other new measures, says Chris. “When safe systems are there and you make them easy to use, people feel part of it, and it feels more like a team effort,” says Chris. “Set facilities up so that they are easy to use safely. And ask your subcontractors how you could improve things, what could you do better to make their lives safer and easier.”

That goes for scheduling the works, too, says Chris. There are some activities where social distancing may be extremely challenging, for instance at the fit-out stage where multiple trades are on site. Getting all the overlapping trades together – possibly via a video meeting – to discuss interfaces could throw up better sequencing. At the very least, it helps to foster that team spirit and lets people know that you are concerned about them and value their input.

4 Due diligence on new contracts

“I never placed a new order without meeting the subcontractor,” says Chris. At a pre-let meeting, it’s important to rake over all the details with a fine-toothed comb: the contract, including any sneaky amendments, lead-in times, programme, availability of material and every single inch of the scope.

“If they haven’t allowed for everything in the scope, it makes things difficult on site because everything is a variation, everything is a problem, and the discussions become regressive,” advises Chris. “It detracts the overall focus from other ways you can make money or improve value.”

This is the time to sit down and brainstorm all the potential risks that could occur and work out together the best way they can be mitigated. You can pretend that all the risk has been shifted to the subcontractor – but it may come back and bite you on the bum later. As a final warning, Chris suggests that if those letting the package haven’t drilled down into the same level of detail as those tendering for it, they are leaving themselves open for risk.

5 Pragmatic approach to disputes

However often industry bodies call for fair play and flexibility in dealing with disputes, we can be sure that the time delays and cost escalations caused by Covid-19 will mean more business for the construction lawyers. There are so many grey areas, explains Chris:

“Covid 19 should fall under Force Majeure, but the problem is that Government advice to construction was ‘you guys can crack on’. That just wasn’t true. There were supply chain issues, people struggling to get materials on site, staff that couldn’t work due to health or family issues. There’s also the complication that Force Majeure only applies if there are no other delays. It’s hugely complex.”

Chris advises candid discussions about what additional costs subcontractors may incur and how those costs could potentially be shared, possibly between client, main contractor and subcontractor.

“Try to find practical solutions that are fair,” he says. “I would like to think that people could see the bigger picture, because more conflict is not going to get the job done. They should be focusing on how to get the job built as safely and quickly as possible.”

A final word of warning

“The true impact of terminating a contract is massive,” says Chris. The greatest risk is where the subcontract is for design, supply and installation, with risk reducing for supply and installation contracts and lowest for installation only.

He gives the example of one project where the main contractor had to terminate the façade subcontractor’s design-supply-install contract. Costs due to delay and employing a replacement façade contractor were £2m on a £20m project.

There may be situations where the main contractor can employ a failing subcontractor’s tradespeople – subcontractors often work with sub-subcontractors or gangs – but these are relatively rare. By far the best approach is to avoid getting to this position in the first place.

Photo by John Cameron on Unsplash

About Kristina Smith

Kristina Smith is a writer and editor with a passion for construction, and a career that began - rather a long time ago – on site, as an engineer.