EP 129

Contract Management in Construction: Tips to Avoid Pitfalls with Variations, Payments, and Nominated Subcontractors. (EP 129)



This week, Paul is joined by Cian Brennan, Managing Director at Quantum Contract Solutions, a company giving “contractual superpowers to construction companies”. Cian helps contractors navigate the choppy waters of construction projects and contracts and provides expert advice.

In this contractually focused conversation, we discuss two real-life examples of contractors getting into a pickle. One is where they were told by the client to wrap multiple variations into a single agreement, and then it all came unstuck, and the other is when they were required to procure a nominated subcontractor.

Cian shares the stories and best practices if you get into similar positions.

Your free OTB downloads

As promised at the top of the show - I’ve shared a link to the Ultimate Guide to Subcontract Tendering eBook below: 


Want to connect with Paul?

Paul is on Linkedin here and would love to talk. You can also connect with Paul at paul@c-link.com or through, C-Link.

C-Link is software built by Quantity Surveyors for Main Contractors. We save 600 hours of Quantity Surveying time per project in automation. We can make your QS’ so much more efficient.

Book a demo to learn more by clicking here.


Paul Heming: Hello and welcome to episode 129 of the Own the Build Podcast with me, Paul Heming. We are continuing our free download of the eBooks and today I’ve linked the ultimate guide to subcontract tendering eBook, which is an eBook I wrote a few months or years ago, I can’t really remember. And it talks about how main contractors can procure and tender better. I think a lot of you can do a lot better, and I’ve talked a lot on this podcast about the different steps, price and documents, scopes, et cetera. We’ve talked to subcontractors about how to communicate and if you are tendering right now, I think you should go and download it and just check it out. Let me know what you think. Anyway, onto todays show, today we’re welcoming back Cian Brennan, who is managing director at Quantum Contract Solutions, a company giving contractual superpowers to construction companies, which I absolutely love. And Cian was on the show in for episode 115. It was a really, really popular episode, so I thought I would welcome him back. Today we’re going to be focusing on two real life examples that Cian’s clients have gone through, and if it’s as good as last time, it’s going to be a cracker. So welcome back to the show. Welcome to join the Build. Cian, how you doing?

Cian Brennan: I’m very good, Paul. And yourself?

Paul Heming: Not too bad, mate. Always happy to be talking about contractual and commercial topics because I think you are the same as me, mate, you’re quite a joy as well. Be here to it.

Cian Brennan: Yes, I enjoy it. We were just talking before we jumped on the call about jumping on with like, one of my favorite thing is, is jumping on with a client who is in trouble. And I’m like it’s not a… 

Paul Heming: Code red. 

Cian Brennan: Yeah. Code red. It’s not a good situation. So it’s kind of like, I don’t know, how do you describe it. It’s kind of a fight on a football pitch, right? Everyone’s like, oh no, that’s not a good thing. But at the same time it’s quite enjoyable to watch.

Paul Heming: You enjoy it. 

Cian Brennan: Right. So it’s kind of like, I like it because I like solving the problem. It’s not a good situation, but I really like it and stuck into it. And who doesn’t like a war story at the end of the day?

Paul Heming: Exactly. Exactly. No, I’m completely with you. I think that might also be why I enjoy having these conversations so much where you almost put yourself in that position, you’re thinking, what would you do? And I can imagine when your phone rings, you’re almost half happy, half excited at the prospect of solving the issue. But before we jump into the topics today, just remind our listeners and our new listeners who you are and what you do in construction.

Cian Brennan: Okay. So my name is Cian Brennan. I’m the CEO of a company called Quantum Contract Solutions. Another podcast host, another podcast like Paul’s by war stories called Construction Secrets. And as a company, what we do is very, very simply in construction, you know how as you go down the line from owner to main contractor or general contractor, the subcontractor, they push the risk down the way. And what ultimately happens is the worst contract in the whole chain goes to the subcontractor. And the subcontractor typically doesn’t have in-house capabilities, the expertise or the resources to one, understand how to negotiate the contract, and two, able to manage the contracts. So typically they’ll review the contracts themselves, they might have a contracts administrator with limited experience, and in the post-award space, they’ll have a project manager who as a side hustle to his regular job, does some contract stuff. Which ultimately, that scenario leads to subcontractors losing money going out of business. And it’s our mission as a company to essentially change the industry in that you can get now get access to top, top level advice and help and systems for a monthly retainer. That’s it. 

Paul Heming: To give subcontractors or contractors contractual superpowers. Right? That’s how you’re changing it. You want to embolden lower down the chain to fight back in inverted commas. But let me ask you a question. I’m pretty sure I remember the answer to this, very simple question for you. Your background Cian is you were a main contractor, right?

Cian Brennan: I was client, yeah. I was a client side main contractor, and I was a consultant, a director in a, I won’t say the name now, but a very well-known cost and contract management consultancy. And so our job was to go in to large organizations and put systems in place too essentially, and I’m not going to say this is it, puts systems in place to essentially not pay subcontractors.

Paul Heming: Really. So that, I mean, you’ve segued me perfectly into what I was just about to say, because throughout this, guys, you’re going to listen to Cian and you think, ah, he’s such a good guy defending subcontractors. I’m the subcontractor. That’s my background. Cian was a mean, mean main contractor, QS, client QS, who has now found a better way to live his life. Is that fair to take it?

Cian Brennan: That’s fair to say. That’s fair. And ultimately over time my granddad was a construction, he was a contractor. He was a subcontractor. And eventually a time came where I’m like, you know what? I’m just putting people out of business here. And I just don’t like doing this. And the ultimate thing is whether you like it or not, and I know Paul, you agree with this, there’s a game being played here, contractual game. And even if you don’t want to play the game, the game is happening, you will just play and lose automatically because you’re not playing. So if you choose to ignore it, then at your apparel, but the game is playing. So we just want to show there’s larger organizations does, if you understand how the larger organizations work, you can use that information to make sure that you get paid. And ultimately that’s what you want to do. 

Paul Heming: I wholeheartedly agree.

Cian Brennan: Most people, most construction companies say I’m in construction. And that is, in my view, incorrect. That means that you just deliver something, you supply something. My view is you’re actually in the business of construction, which has two parts. One is delivery and you deliver your product, your service, whatever. But other half is getting paid for it, the business side of it. And so contracts and the commercial acumen is all about the money side of construction.

Paul Heming: Completely, utterly agree with you. And that sets us up very nicely, Cian, for. I already enjoying this conversation. They’re always good. That sets us up very nicely to lead me in now to the first game. In the first half, we’re going to play game one. Right? And you recently talked to me about a client of yours, or you recently talked on your show about a client of yours who got into a really sticky situation concerning variations, changes to the scope, et cetera. Now I’m going to ask you to explain this more yourself, but as I understand it, the client side QS or the PM, the opposing PM, suggested not to issue variations and EOTs individually for changes and events that happened. And they instead suggested to wrap it up into one single agreement rather than having lots of different agreements. And as soon as I heard this, and this where the story goes, isn’t actually where I expected it to go. But as soon as I heard this, I alarm bells started to go off. And I thought, using your game analogy, this is a game that I have been asked to partake in many times. So just explain what happened.

Cian Brennan: Okay. So this was a civil company on a major project with a well-known tier one contractor, so well-known main contractor. And like most companies they want to do a very good job. They want to go out there, they want to perform for their client, they also want to get paid. And they came to me with a, what I can only describe as a huge problem. Like a huge… 

Paul Heming: So when they called, was it a code red or was it a code triple red.

Cian Brennan: It was code Brian Paul. So they rang me up. They told me all of the issues, took a long time to get through the whole discussion, but they were on site with a PM and their PMs, they’re working with their PM and their PM said to them, hey guys, look, there’s all these different changes that I’ve asked you to do and all of these different delays that we’ve had, and look, can we just hold off on submitting all of those? And then what I want you to do is submit them all into one big variation and I’ll approve them all in one big go. Right? 

Paul Heming: I’m scared right now.

Cian Brennan: It’s the same as you. I’m sweating, I’m like, oh no, I know exactly where this is going. And so they did that and they wrapped it up and what happened was the PM approved it. And not only that, they got paid the money in full and I think it was on account which is important, which is one point something million dollars they got paid in this additional amount. And so, great. Sounds good. Now, I often talk about relationships in construction, how important relationships are. And sometimes what people don’t realize is relationships go missing. It’s not that relationships break down. People leave, people go. And so what often happens in these large companies is they bring in what’s called a closeout team. The closeout team, the PM that is there. He gets pulled out, he gets put on a different job.

Paul Heming: They’re usually quite mean. It’s my experience. Closeout. 

Cian Brennan: Yes. They’re mean. They’re closeout. So they come in and they go, oh, I don’t care. You know, what sort of agreements you had with Tom, Dick and Harry, I don’t know. I can’t rely on that. We just have to rely on the contract. And so that’s their job. Their job really is to come in and save money. And these larger organizations, so main contactors generally are finance companies. They call themselves construction companies, but they’re not really their finance company. They make money by winning a project. 

Paul Heming: Bigger guys, right? 

Cian Brennan: Yeah. Winning a project, getting finance, and they make subcontracting out to work and they make money on the Delta. Right? So everyone does that, not just the big guy. The big guys or most main contractors will do that. Contractors. And so towards the end of a project, they need to save money. So they bring in these teams to save money. So these teams come around. And in this scenario, the closeout guy came in and he rang up this company, the civil company, and they said, okay, sorry, it was a letter. It wasn’t even as courteous as a phone call. It was a letter. And the letter said having reviewed this variation, the $1.5 million variation, two things I’d like to let you know. One is reminder that it’s payment on account. Okay. So for those of you know that don’t know a payment on account is, money can transfer over and back. It’s given to you, but I can also take it back essentially. Or we can offset this amount versus that amount is, which is why they kind of want to do it. Reminder, its payment on account. Second thing is we reviewed the variation and we’ve noticed that the variation was approved in error in that you didn’t submit your notices when the changes took place and you didn’t submit your notices when the delays took place. And so you should have submitted your notices and your variations for those specific things at that specific time. You didn’t do that. And therefore you’re time barred, which means you’re not entitled to be paid that money, which means that that 1.1 or whatever million dollars was paid in error. And we’ve noticed that you submit your final pay account, which is $1.5 million and we’re going to give you 400 grand because we’re going to offset their $1.1 million against it. 

Paul Heming: Horrible stuff, isn’t it?

Cian Brennan: Horrible, horrible stuff. And they also did mention liquidated damages as well.

Paul Heming: I was going to say, that’s the thing, right? Not only did you not get your variations in and the time impact associated to that, but hang on a minute, you’ve never put in a notice of delay and you are actually three months late and LEDs are whatever. So, it all starts to unravel. Before we get to what you did or what your client did, just going back to what you said at the top of the show, really about you went into an organization and set up a structure. This is way back in your career far before Quantum, where it was almost how to contractually manage subbies to reduce costs. Right? But you almost, you talked about setting up a structure there. Now the closeout team strikes me as such an obvious way for main contractors to manage subbies and really hurt them. Right? You’d like to say it’s to save money. Is that something that you have never been in a main contractor? Is that something that you saw as part of the course? Like that’s almost, that is how we are going to save money. You have almost the good guys for 90% of the job and then you bring in for the last 10%. The main contractors. It happened to me a few times, but they would come and say, well, look, I have nothing, I don’t know anything about this job. Tom, Dick and Harry left. So I have to play this 100% by the book because I can’t go on hearsay or stories or relationship. I only can go on what’s written down and guess what, there’s nothing written down. So no variation, no 1.5 minute, which is basically what happened in this example. Right? Beyond the obvious of always doing the right things. What should you do when a closeout team comes on? How do you recognize a closeout team coming onto your project?

Cian Brennan: Well, okay, so what would happen is maybe at a certain level there might have been a discussion about closeout teams coming in but that’s not something I’ve ever seen. Right?

Paul Heming: Exactly.

Cian Brennan: We’re bringing in a closeout team that’s designed. 

Paul Heming: It’s delta sheet. 

Cian Brennan: Yeah. It doesn’t, like it sounds almost, you know…

Paul Heming: Do, do, do… Here they come.

Cian Brennan: Exactly. But it’s not that you, in certain organizations, you’ll have a guy that’s really good at claiming costs back and saving their project. And then that guy will… 

Paul Heming: That’s Cian Brennan back in the day.

Cian Brennan: And then that guy who’s known, we’ll go right, we’re going to put you in there because we know you can save costs and it’s more to do with the overall project. The overall project is running over budget. We need to go in and save costs. And the view from their point of view is we need to save costs in a way that we, like everyone has a different perspective. Like subcontractors are ripping us off, main contractors are not paying us on time. Right? So, perspective is we’re coming out, we’ve got to make sure that these main contractors are not taking advantage of us, which means that if they haven’t complied with the contract, they shouldn’t get paid. It means if they’re backup for all of their invoices and payment applications and EOTs and change orders are not good enough, they shouldn’t get approved. They just go very hard on the law. If that makes sense. 

Paul Heming: But you know what, and I think we’re going to come full circle now, if you’re a director at a main contractor and you are detached from the realities and the relationships of the job, and you look at a job that’s doing badly and you say to someone, we don’t know what’s going on that job, but I trust you to go in and find out what’s happening and just make sure everything is by the book, right? That main contractor closeout, QS or whoever goes in and does exactly that and act, at the end of the day, just values the account based on what the contract tells them to value the account. Now it’s not nice and it’s in the situation that you described, right? It’s pretty savage. But if you put yourself in the main contractor’s perspective and there’s the, you said go and just value it by the contract, that is all that closeout mean QS that we are describing is going to do. So let’s come back now to the situation. What was the advice that you gave to your client and what was the advice that you gave to your client for their next project?

Cian Brennan: Okay. So I’ll go through the whole thing, right? So what’s the problem we’re trying to solve? The problem here is you’ve just lost a million dollars out of nowhere, right? And what’s the reality of the situation is? The reality is, and then we got to look at it from three different perspectives. Perspective one, what’s your story? What happened? We know what their story is, I’ve just told you. What’s the client’s story? So the client’s going to say, well, you didn’t comply with the contract, you didn’t do this, you didn’t do that. And contractually, where do you stand? So if you look at all three of those things, that allows you to make a determination of where we should go next. Right? So if we look at those, your story, highly unfair, right? Like really unfair, unethical, key point, unethical. Second, their point of view. Theoretically they’re right. And they contractually you are stuffed, right? Basically.

Paul Heming: Is that genuinely the situation when you looked at it, I know we talked about the headline, when you looked at it, did you think, oh God, we’ve got no legs to stand on here.

Cian Brennan: Exactly. Yeah. Right. So then we got to go so that there’re the three assessments. It’s not that we’ve, sorry, we’ve no legs to stand on. Contractually, there’s no legs to stand on. Right? But levers, what different levers can we use? And so the ones I like to use is, okay, a lot of the times who has the money is a lever, right? Whoever has the money is the person that is in a stronger situation in a dispute. The next thing is cash flow wise. Where are you? Are you in a bad situation? Do you need to make a deal desperately or not? And then that last one is relationship. How is your relationship with them? Can we leverage their relationship? Because all three of these, all of these things matter. And so with all of these things, it’s like, okay, what they’re trying to do here is they’re giving you the worst case scenario to try and come in and have a settlement at the end of the day. Right? So we need to know that now that we’re here, we are never getting to 1.1 million. We got to realize that that’s the case. It’s a race to see. Now who loses the least amount of money? And so once you’re going to set expectations of that, is that we need to get as much of that 1.1 million back as possible. But let’s realize that we’re probably not going to get it all back because we’re going to have to come to negotiation some at some stage. So what were the levers that we could pull? The only real lever we can pull is to, if we’re continue, because they were engaged by a very well-known mining company. Okay. That’s the top of the food chain with very high ethical standards of subcontracting and contracting. And again, this is pretty weak because contractually they’re not in a good position. But we could very clearly demonstrate that they were specifically told to do this by the project manager. And so while it contractually wasn’t the right thing to do, it could be seen as instruction, right? Yeah. And so we–

Paul Heming: Unethically.

Cian Brennan: Unethically, so we really harped on the ethical standards of that company, the ethical standard of the owner of their project to contract on that. And then…

Paul Heming: What did you say? Sorry to interrupt. Did you say we’re going to tell the client, what do you think the end client’s going to make of this if we tell them?

Cian Brennan: Yeah. Yes. Basically, basically that is, that was the strategy. Now, I don’t think that is a very good strategy. That’s like a scorched earth. Like you never really want to go above your client because it’s going to ruin the relationship. But if you’re in a situation where the relationship’s already ruined, let’s go to the client above. And so we came back with them highlighted very, very clearly that on multiple occasions we are instructed to do exactly what we did. It was approved, it was paid. And then always with these things, you need to let them save face. So let’s have a meeting, let’s say, let’s have a meeting, see if we can come up with an organization. Otherwise we’re going to the owner and we’re going to show them exactly what’s happening, right? And we’re going to write a letter, blah, blah, blah. Came to the table, had a negotiation that they came up with and resolved it. But they still lost. I can’t remember exactly what they lost, but they lost at least 400 grand.

Paul Heming: And so savage situation, whichever way you’re looking at, it sounds like you managed your way out of it as best you could. I guess 400 grand whole leaves a lot of angry and dejected people in your client’s organization. What were the takeaways from that?

Cian Brennan: So the key takeaway is relationships and commercial. Should you value a relationship more? Or should you value being contractual or commercial more? Because the old way of looking at it, it’s all about relationships. If we can have a relationship and that’s the way we used to do business. That’s how we should do business now. Right? Then there’s the kind of the new age stuff. And I’m not into this, right? Where it’s just contractual–

Paul Heming: Oh, the books. 

Cian Brennan: Like everyone’s a desk jockey. Everyone’s sending letters over and back. Like the guy is sitting on different cabin 10 minutes away and you’ve just written, you spent half a day writing a letter. I don’t agree with that stuff either. But the bottom line is it’s, you need to do both, right? Because relationships, as I say, go missing, they go away. It’s not that you have a relationship where a bad relationship or you’ve rubbed someone up the wrong way. That’s one way it can go, Sarah. But the other way is they just go away and you don’t see them again. And you got to.

Paul Heming: I think that’s a really good way of putting it because people don’t perceive that particularly on these bigger jobs that, and that’s a really great way of defining it. They go away. It’s not that you end up falling out, people over the course of a two year job, one year job, whatever that may Dickie in this case, he’s going to, he disappeared. He just went and got another job and left, right? But what do you do if you’ve only relied on the relationship with Dickie if he goes. 

Cian Brennan: Exactly right. So, Dickie’s been on a four year job, right? A three year, let’s say it’s a four year job, it’s coming to the end of the four year job.

Paul Heming: He’s looking for another job.

Cian Brennan: He’s looking for another job. So he’s probably going to go because all of the problems happened in that last quarter of a construction project. When you’re like, they’re going to offset that, that’s the game. I promise you if you listen to the game is we’ll make up some big claim. You’ve got your final account and we’ll offset it against your final account to try and save some money. Which is pretty much what happened here at the end of the day. And so when we look at relationships, relationships are important. Relationships can get you out of trouble. Relationships are great for referrals for repeated work. Very, very true. But would you rather be sitting in a meeting in that final quarter of a construction project with all of your ducks in a row? You’ve known, like let’s just say this civil company, they’ve done all the notices, they’ve submitted all their variations the whole way through. They’ve done it the right way. And they’re sitting in that meeting having a discussion, right. Or having to do what we did essentially. 

Paul Heming: Yeah. And just one final thing on this point. I guess, maybe the piece of the puzzle that I’m missing slightly it from the context is, so there was loads of events that delayed this company, loads of variations that delayed this company. And I’m guessing they, I don’t know, were recording it somewhere, but never formalizing the submission. Like how was that, because it basically got bundled right into this 1.1 million. 

Cian Brennan: Yep. That’s it. Yep.

Paul Heming: How did it get bundled? Like where was it being recorded and because it’s almost like they should have said, yeah, we are bundling this, but we’re submitting it and we can put it into your bundle Dickie, if that’s really what you want to do, but what were they not doing that they should have done to manage the relationship with him, but also manage the contract?

Cian Brennan: Okay. Well in that scenario, they shouldn’t have bundled them all into one. Right? That’s because what’s happened is, the contract will say for every change and for every delay, you need to submit a notice within two or three days or four days. If you don’t, then that delay or that change is deemed to be on you essentially.

Paul Heming: So they were doing it at the end of each month or something?

Cian Brennan: No, they never did it, they didn’t do any of it because the guy was like, don’t do any of that stuff. He said, don’t submit the notices. Because the process in every contract more often than not is you submit a notice within X, Y, Z days, and then after four or five more days, then you’ll submit the variation change order or the EOT. That’s the process you have to follow. If you don’t do that, you’re not going to get paid. And so the project manager said, don’t do any of that. Let’s just, you’ve got my emails to you. Let’s just get it all into one big variation that has all the things, and I know the things that, all the different things that happened and I’ll just approve it. That’s what happened.

Paul Heming: I’m nervous at the, just the thought of that makes me incredibly twitchy. It does, but I can understand. Okay. 

Cian Brennan: Oh, it’s completely the wrong thing to have done without a doubt. Right? And so if you put all of your notices in, this is anyone who’s listening, who’s a subcontractor, and I’m sure Paul’s blue in the face as well. It’s submit your notices. The way to do it is you have TQs, you have site instructions, you have all of the stuff that needs to get submitted all of the time anyway because the contract says you need to do it. Notices are all exactly the same. The notice doesn’t have to be from Cian to Paul, like a handwritten emotional note. It can be a memo. That says–

Paul Heming: You can do that if you want. Cian, don’t do it.

Cian Brennan: It can be a memo that just gets submitted into doc control. Doesn’t matter. And then your EOT can be the same. It’s just procedural. And then what you want is to build a body of evidence so that when you’re in the fourth quarter of a construction project, a squeaky bum time, as Alex Ferguson would say, you’re there, you’re sitting there with all of this backup to say, guys, look, I’ve submitted 20 notice of delays. You’ve changed the work 20 different times.

Paul Heming: I agree. I agree. And so to finalize this what that company could have done, they recognize the opportunity in the relationship with Dicky. And they want to kind of serve that relationship because they think it could help them agree at 1.1 million variation. But in the background, someone lower level away from that relationship could still be submitting memos, notices, whatever, to the main contractor and saying, these issues are happening, Dicky almost, you can just say to, well, we’re going to do that anyway. And he knows about it, but yeah, we’ll go along with your approach. Is that how they should have done it?

Cian Brennan: I think so. I would’ve told Dicky that, hey, Dicky, look, the contract says we have to do this. We’ll do it. We’ll do it, we can then bundle all the variations up into one variation, but we have to do these two things or else we’re deemed to not be compliant.

Paul Heming: Excellent. Okay. And I think that is more than enough of Dicky for the first half of the show, we will come back right after this break.

So Cian, we’ve put the world to rights, haven’t we already? I’m tired after the first game, the second game, we’re going to come onto briefly, I guess just going to extra time on what you were saying before about on account payments. So on account payments are things that, I’ll admit that when I was secondary subcontracting or sub subcontracting, sometimes you think I haven’t got the time to look at that variation, this month for my subbies, pay something on account, get through this month and we can discuss it next month. Might then get to the next one. Think, ugh, we’ll kind of agree that. Like, it almost rolls and it’s something that I completely understand from the person who is paying sometimes about time. But when I was the person getting unaccounted for my variations, I viewed it very differently. So talk to me about what you think contractors should do about on account payments if it’s happening to them. And this could be a main contractor with their client or a subcontractor with their main contractor client. What’s your advice?

Cian Brennan: So I would love to have some revolutionary advice from you, Paul. So in the front end, there’s going to be a clause about payment on account. And so negotiating it in or out, right? So here’s exactly what to do. So there’s no fairy tale stuff about it. Unfortunately. We’ve done, as a company at this stage, we’ve done more than 3000 contract negotiations and the payment on account clause, we cannot get it out. Everyone wants to have the ability to do that. Right? 

Paul Heming: Which makes sense.

Cian Brennan: Which makes sense, right? Because they’re like, oh, exactly what you said. And then the other side of what you said as well, the mean side of taking the money back, right? So it makes sense, but what you can do is, and I’m not going to say like the, what you can do is you can set up a criteria to take money back. You can say, alright, well that’s fine, but what I want you to do as part of this clause is one, ideally let’s have a meeting to explain before you take the money back, we need to have a meeting to explain what’s happening and to agree. Okay? So you put a step in the process to make sure that they don’t just whip the money back out. They have to sit down and have a chat to you. So one is you want to be notified, a document saying there’s going to be a payment on account. And two is you want to sit down and have a meeting prior to it actually happening. And so the benefit of that is that more often than not, they mightn’t do that. And then they’ve not complied with the contract. And so now you’re in a position of power where you can get the money back. You can say you’ve not complied with the contract, you need to get the money back. Still not great, but it still gives some barriers to entry for them to do it. But also they have to sit down and talk to you and send you a letter. They have to do stuff before they do. It just makes it a bit harder. 

Paul Heming: The thing is, my experience with this, and I’m guessing this will resonate with a lot of people, is that what happens is application one 12 month contract, right? Application one comes around, there’s probably not many variations. Whatever. Application two comes around, the relationship is still very good and variation four, five, and six on account. And you say to them, hey, can we have a chat about variation four, five, and six? And they go, yeah, let’s try. And then it maybe doesn’t quite happen in that month. And you think, right, next month I’m got to get that. Then you’ve got seven, eight, and nine and there’s all of a sudden there’s like multiple on accounts, some agreed, some not agreed and it’s quite a hard lever that you talked about, right? To be like, at that stage in the relationship, I certainly felt with this, to be like, I am talking about those variations right now and I need you to agree to them right now. I’m not having on account, it’s a load of bull crap or really being, this is the balance, right? Because if you don’t do that, all of a sudden you’re in month six and half the variation account is on account and you’re in no man’s land. But it’s quite a difficult, it feels, I guess like a simple, oh, who cares? It’s payment on an account. It’s not like them blocking you in a brutal way. It’s just tiny little chips away at your profitability, is kind of how I view it. So let’s go back to me it’s month three and it’s the second time I’ve had payment on account and they’ve agreed to variation meetings and they’re kind of, yeah, we’re looking at it, we’re looking at it. How do I say I cannot have those variations on account and want certainty from you by month four? How can I guarantee that? Because I often found I couldn’t.

Cian Brennan: Well, assessment periods, negotiating assessment periods into the contract on the front end, that is a potential solution. But then there’s always this hat. And so you’ve got some contracts people that just bash you over the head with the contract, right? Here’s the contract, here’s the contract, here’s the contract, and I’m just like those type of people are, they don’t see business, right? Because ultimately it’s about putting money in people’s pockets and doing the work, right? So how can we use the contract to get us there? And so from a risk profile, whoever has the most money, whoever has the money in their account is in a better position. So getting paid on account, you’re actually in a good better position. Because you’ve got the money, right? So you can be, you can be like, no, I’m not giving it back to you. Obviously, it depends on how you manage it. And so how it’s actually going to unravel is eventually they’re going to offset it against another payment. That’s how they’re going to get their money back, right? So as you’re going along… 

Paul Heming: Keeping you sweet, keeping you sweet, keeping you sweet–

Cian Brennan: You don’t want to have a situation where your final payment claim is huge. You want to back load that your final payment application is small. So as you’re going by, you’ve gotten as much money into as you can, but your expenses are coming down. You stop spending money on the project so that when they try to offset it, then you’re in a reasonable position because they can’t offset that much money. That’s kind of the game you’re probably trying to.

Paul Heming: That makes sense. One of the tactics I used to have was like almost lying in the sand interim agreement. So keeping it simple, 12 month contracts, what I would be saying, month three is saying, look, if you, in month two, I’d say, look, if you want to do one account, I appreciate everyone’s busy, but at the end of month three, we will agree the entire account up to the end of month three. Wouldn’t always be able to do it, but like, where you would really force or really try to force getting absolute character so that 90% of the first quarter was done but it’s really difficult. And we are talking a lot here about almost the perfect world, right? So I appreciate some people will be listening and go, you don’t know my client, he’s… Like she’s really awkward or whatever. And we’re kind of saying, hey, just do this and it’ll be absolutely fine. And that’s why I wanted to ask you about that because I know from my own experience that there was certain times where you just thought, ah, you almost have to let that slip, even though it doesn’t feel right to protect the relationship. So it’s a fine balance. But anyway, really, really interesting stuff. The other thing I wanted to talk to you about today, game number two is, on one of your shows recently you were talking about the nominated subcontractor nightmare in construction. I found that quite a funny phrase that you put together. So first and foremost, what is a nominated subcontractor?

Cian Brennan: So a nominated subcontractor is someone probably identified by the top of the food chain, the client, the owner that needs to be part of the project, right? So typically what happens is these guys tend to be a supplier from the local area. And so the owner who has gotten his permit, or as a contingency to do the project, has to use local people to do a job, right? So he’s like, I have to use these guys. Or maybe it’s some sort of native community, or its part of his obligation. Or maybe, I don’t know, maybe it’s his…

Paul Heming: It’s a bit of granite or something that he likes or… 

Cian Brennan: Yeah, exactly. He has some personal preference. So it comes from the client typically, and then that flows down the way. It’s basically a subcontractor that, or supplier, typically it’s actually supplier, but that needs to be used. You have to use this guy. So there you go. That’s the guy you need to use. And so typically the way it works is they will give you a budget. They’ll say, okay, well here’s a budget to use this guy. And that’s include that in your bid. And then you have to go and use that guy and manage that cost.  

Paul Heming: And so we can look at this for once as if we are either we’re both, main contractor or subcontractor. Let’s imagine it’s the same thing. So if you’re a main contractor, you’ve been nominated as a subcontractor who offers a procure. If you’re a subcontractor, you’ve been nominated as supplier granite or something, for example. Right? 

Cian Brennan: Exactly. 

Paul Heming: So if we imagine that, that’s my own experience of it was granite and marble and stuff like that. 

Cian Brennan: Mine was concrete.

Paul Heming: Okay. Mine was more glamorous. I’ll take that. 

Cian Brennan: Yeah, that’s nice. 

Paul Heming: But so when, whoever you are manual or subcontractor, you pick up your tender, let’s start from tender stage because that’s where it would come in. And it says you have to use this granite supplier. Or this concrete supplier. What should you do?

Cian Brennan: Let’s go back and let’s try and find out the problem that we’re solving. Because that’s important. So the problem that we’re solving is, well, sometimes it might just go, you have to use this guy and they don’t even give you a cost. And you’re like, oh, how much is this guy going to cost me? And that’s actually not so bad. I mean, because then you can go and you can get that guy’s price and you can include it in your price. Right? So you get it and you understand the issues. But in the show that I did before with the nominated subcontractor nightmare, it was a list. And it said you need to use this concrete supplier. This concrete supplier is local to the region. Everybody’s using him. And then therefore that’s the guy we need to use. And it’s like, fine, the budget for this guy is 300K, right? So I think it was like 30% of his project, he had to go, like, his project was million 30%. So it’s 300K. He’s like, fine. Okay, grand. That’s the cost. Wins the bid. Goes to the supplier. Supplier says, yeah, you got to pay the 300K upfront because we have so many companies coming to us. Because everybody’s using us for concrete. 

Paul Heming: It’s like a monopoly almost in the region. 

Cian Brennan: Yeah. And you have to pay front to get your slot, right? Because if you don’t buy your slot, you’re not going to be able to get the concrete. 

Paul Heming: Sounds like a good business. That concrete business.

Cian Brennan: Yeah. It is. So anyway, but well, because there was a major project in that area, right? So supply and demand. So, now he’s in a situation that he needs to fork out 300K before he is being paid a penny. And so that’s going to cost him in finance that he didn’t originally anticipate. And that’s a real difficulty. And that was the issue that happened in that scenario.

Paul Heming: And so what should he have done differently? What should they have done differently?

Cian Brennan: So in that scenario, he should have went to the supplier, understood the payment terms, understood the obligations, and understand what that contractual arrangement is going to look like in the first because he’s going to have to have a contract with that guy. So they need to have basically gotten ahead of agreement, here’s what the contract’s going to look like. Or in a supplier’s point of view, you’re probably going to just sign their contract. If it’s a supplier, maybe you need to understand exactly what the payment terms are. Also, like what’s the payment duration? When do you have to pay?

Paul Heming: You need to procure it like you would procure anything. Right? 

Cian Brennan: Procure It. How long is it going to get? Like you basically need to treat them as if they’re your supplier essentially. I mean there’s an element of missed project management from that client as well, but ultimately he ended up losing quite a lot of money.

Paul Heming: Yeah. I mean it sounds like there was quite a lot of mismanagement really just accepting what the client was saying as, yeah, 300 grand gets the job done. My experiences of nominated suppliers or subcontractors, it’s slightly different in that, it was less localized. And it sounds like that one was you have to use this because this is the supply that’s closest for whatever reason, blah, blah, blah. Mine was often more like what you talked about before, like the client just like, oh, I love that piece of marble from that specific quarry and it’s got to be Shay Black from, like, that’s literally my experience. Now my experience with that was that it always said something along the lines of, you must use shank sea black granite from this quarry or approved similar or words to that effect. Right? So, almost always left the door slightly ajar. The thing I always used to find troubling about nominated subcontractors is that they knew that they were nominated because they would typically have gone through quite a detailed design process with the architect, with the design team to become embedded into the spec. Right? So they knew that. So always had the challenge of negotiating good terms, which is probably similar to what your concrete guy, the concrete guy knows it and they say, give me the 300 grand up front, or forget it, right? Or you’re at the back of the queue. So it ties in with that. So you would always have that, but number one, you need to go through a proper procurement process as if you were procuring them yourself. Right? Which is what you’re saying. I had examples of where we would procure that granite and then we would try and get three or four alternatives as well where you could line them up and say to the client, are you sure you want to use that specific granite when we’ve got these alternatives that could be cheaper or it could be quicker. And then you almost bought the client into them saying, no, I want to use that one that I love. And it costs that, like it almost makes them make that bad decision for the projects. Because is how we framed it is like, it is an extra 10 weeks if you do that. Are you sure you want to do that? And they would still be like, yeah, I love that granite from that quarry and they did it. So do you have any experiences around that? What experiences…?

Cian Brennan: I mean, what you said there is absolutely fantastic, but that’s great subcontractor management. A lot of times I think and we’re talking, it’s about the tender period, so you’re kind of going to have to go, you don’t even know if you’ve wanted to work at this stage. So a lot of these guys are you going to go and go and get these four different samples of these four different pieces of–

Paul Heming: At estimate tender stage.

Cian Brennan: At tender? So you’re probably not, you’re probably just going to go, okay, well, they said it’s going to cost in this scenario 300 grand, so I’ll put 300 grand on that line item and we’ll go from there. That’s it. So the extra phone call really is all we’re saying, have the phone call to understand the payment in terms, because the price, that line item is going to be 300K for everybody. But if you can find the payment terms and then as you progress into tender and you start having tender meetings then, and you know you’re getting closer, maybe you’re all of a sudden technically qualified, you’re having meetings. It’s at that stage that we, I would suggest doing what you’re suggesting, which is—

Paul Heming: It’s almost. Yeah.

Cian Brennan: Is a fabulous idea, to be fair.

Paul Heming: Yeah. So it’s almost, the differentiation that you are making, is almost between estimator and QS or tender stage and contract stage, right? Where I’m talking about the process that I would go through to look at the options and try and value engineer or whatever as a QS. What you explaining is the step the estimator at their stage is just saying, alright, yeah, it’s 300 grand, whatever, that’s 30% of the product I don’t even need to worry about. That’s fine. But actually not knowing the terms of that agreement cost them dearly. Right?

Cian Brennan: Massively. Massively. And the tender stages is actually so important. It’s such a good negotiation tool as well. So we’ve got a client that’s been with us for about four years now. A big engineering company. I was chatting to their CEO and is a huge company and he says one of the things he always does is regardless if it’s the simple as bid going or whatever, he will call for a tender meeting to discuss stuff. And he goes, it’s just to show face. He goes, the more contact points we can have with the client, the more information we’re going to be able to get. But the more that they trust us, the more that they see my face and it’s actually becomes a great marketing tool. So–

Paul Heming: 100%.

Cian Brennan: And when you go and try and value engineer, they’re like, oh, these guys are switched on. I’m like, for example, I don’t know, did you win that project? But if they say, hey, okay, I still want the same granite, but I like these guys because they gave me four different options of what, and they were a reasonable option. I still went through granite. But if they apply that knowledge elsewhere, that’s great. And it also gives you a chance to propose alternative solutions commercially as well, which I really like. So I’m a big fan of our clients submitting alternative bids or getting to the stage where they’re having those tender talks and they say to the client, instead of just the way you’ve structured it now, what we’d like to propose is you pay us a down payment. The down payment is going to allow us to secure materials. Materials really hard to get at the moment. Down payments are secure people, people are hard at the moment. We can definitely secure them. We’re going to be able to deliver better for you. In exchange for that we’ll take 5% off the total cost of the project and explain, so you’re swapping total cost…

Paul Heming: That’s flow forward for cash flow.

Cian Brennan: And in the market that we’re in now that is a godsend. And if you’re good at what you do and you got good contract management, you’re going to make up that margin on in changes.

Paul Heming: Yeah. It’s, you’ve brought me full circle from how I started the show, right? Well, I was talking about that ultimate guide to subcontract procurement, tendering eBook down. Go and have a look at it now in the podcast description. Because what you’ve just described is from the subcontractor’s perspective, right. Book that tender me. If you do that, it’s marketing, right? You can almost talk about the project, build that relationship and yeah, oh, that is a subbie I want to work with. I think that works the other way as well. So I think that the main contractor should be saying, not just slapping out a tender should be saying, I want to meet you on day X for a mid-tender meeting or whatever, because the main contractor should, by the same token, be marketing their project to make the subcontractor think, oh, this is a project, they seem like a really good bunch of guys. I really want to work with them. Let’s really come up with some good value engineering for our next meeting or for our submission. It just smooths that whole circle. And too much is hands off. I feel. And that is partly because of like the fractured nature of relationships almost in construction that contractual negativity. But if you actually get people around the table, you will have a much better process. And that’s one of the five steps that we talk about in that book.

Cian Brennan: I absolutely love that. There’s another reason as well and make it like kind of more present day. Like right now there’s lots of main contractors going out of business, so lots of subbies going out of business, right? So the industry has definitely shifted in the wrong way, right? Obviously for everyone involved. And so cost materials going up can’t get people. The cost of credit is going up, so costs are going up everywhere. It’s harder to deliver, it’s hard to deliver on time, on schedule. That’s probably the reason I would suggest people are going out of business. But as part of that, now people are concerned about, well, if you’re, so, if you’re a main contractor looking at a subcontractor, okay, price is important, right? But I’m concerned, very concerned, like, can you actually do the work for me? And so getting you into a room to establish, well, is this type of company that I can trust to actually finish the work that’s really important. And same for the subbies. Can these guys actually pay me? Are they dodgy? Got it like… 

Paul Heming: 100 percent. 

Cian Brennan: And then if you have that relationship, you can figure out those things. It’s worked the, you know what, Paul, really good analogy before we got on this call, we talked about hiring processes and you said that you’ve implemented a really good hiring process into your business, which is actually quite extensive, right? Loads of hiring. Because it’s going to make it hard to get in. And ultimately they respect you more and you get a better person. This is the same thing, I think this is have more meetings, right? Don’t necessarily, if you’re a subcontractor, you don’t have to say yes. You can say no to people. If their terms are too hard, say no because right now the risk is too high. The risk of something, if you’ve got that access of, your perceived likelihood of, not perceived likelihood, the likelihood of risk taking place and the consequence of the risk taking place, that whole matrix, the consequences are of course the same. They’re depending on that, but the likelihood of them happening have gone up. And so take that into account because it really, really does matter.

Paul Heming: Yeah. I completely and utterly agree with you and it has been another phenomenal show, even if I do say so myself. And I think we both got experiences that we tap into. We’ve both got quite a similar mentality on how things play out. So I hope that those two games there have been illuminating to our listeners, Cian, I’m almost definitely going to invite you back onto the show very, very soon because I really enjoyed that. Thank you for your time. I’ll leave all of Cian’s details in the podcast description and yeah, nice one mate. 

Cian Brennan: Take it easy, Paul. Chat to you soon.

Paul Heming: Cheers mate. Speak to you soon. Take care.

The Ultimate Guide to Subcontract Tendering

On an average project, you procure somewhere in the region of 10 to 20 subcontractors depending on h...

Download now

More Episodes