EP 118

Entire Agreement Clauses: What You Need to Know Before Submitting Your Tender (EP 118)



In the studio today, we have Lawrence Pearce, a construction solicitor at Holmes & Hills Solicitors. Lawrence is a Construction Lawyer who helps construction companies to avoid costly disputes and keep the money flowing within the industry.

Lawrence is a contract law episode, and everyone should follow him on LinkedIn for fantastic insight. In today’s conversation, we focus on Entire Agreement clauses, which Lawrence has seen become a bigger and bigger problem in the sector. Do you know what an entire agreement clause is? If not, you need to listen to this, as your tender could be invalid!

A must-listen for all commercially minded construction professionals.

Your free OTB downloads

As promised at the top of the show - I’ve shared a link to two of the two free downloads below: 


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Paul Heming: Hello, and welcome to episode 118 of the Own the Build podcast with me, Paul Heming. As last week, we are continuing our free download giveaway and attach two documents to the podcast description. So, there’s a pre-qual questionnaire for subcontractors and there is a project execution plan template as well. Feel free to go and download if you haven’t been listening to the previous episodes and you are new. There’s over the last five or six episodes, there’s a lot of free downloads to go and check them out. In the studio today, I am joined by someone who is smiling. I’m looking forward to speaking to, so I’m joined by – I say that every week I reckon. I’m joined by Lawrence Pearce, who is a construction solicitor at Holmes and Hills Solicitors. Lawrence is a construction lawyer who helps construction companies avoid costly disputes and keeps the money flowing within the industry. And everybody knows that I love a bit of contract law and posts about these kind of things. He is a serial LinkedIn poster, although he’s just been telling me he is struggling to find the time to do it at the moment, but everyone should check out. So, I’m going to link his LinkedIn so you can all see that. Enough from me. Welcome to the show, Lawrence. How’s it going, mate?

Lawrence Pearce: Yeah, not too bad. Yourself?

Paul Heming: Pretty good. Pretty good. You know, probably one in, one in four, one in five shows, we talk contracts, we talk commercial contract law. I used to always love it when I was QS, and this was a bit that I really loved about the process, so I’m always excited to be talking to someone about the topic.

Lawrence Pearce: It’s good to know someone else is talking about it and not just me.

Paul Heming: Do you talk about it every single day though, and you just want to relax? You don’t want this problem.

Lawrence Pearce: It’s a difficult one to switch off from. It is definitely difficult, but it’s good. It’s good. 

Paul Heming: Yeah. No, excellent. And honestly, the post that you do thought provoking, I don’t want to say simple, it sounds like I’m demeanor, but it’s like just easy bite sized information just to make you think about what you’re doing and I can see why it’s resonating so much. And like I said, everyone should check it out so that we understand more about you and your career really. And then your career in the construction space. Can you just tell us about yourself?

Lawrence Pearce: Yeah, so I feel like I’ve kind of stumbled upon the construction industry.

Paul Heming: Wait, wait. You didn’t think, you weren’t at school and thought construction industry? That’s for me.

Lawrence Pearce: No, the dreams of a footballer die quite quickly.

Paul Heming: Same, I’m afraid.

Lawrence Pearce: Went off to university, did a straightforward law degree came out other side. Ended up working for a large international firm doing paralegal work, actually dealing with wind farms, which kind of sparked the interest in construction, a lot of kind of European work. But yeah, since then went on qualified in 2016. And since then, the last eight, nine years, it’s really been dealing with just solely construction in day in, day out. But it’s a great industry to work in. Diversity of clients. It’s a really good industry.

Paul Heming: Why Lawrence, did you want to become a lawyer? Why did you want to study law?

Lawrence Pearce: That’s a good question. Unfortunately, my brother’s also a lawyer, so there was two of us in the family. 

Paul Heming: Oh, no. Double check. 

Lawrence Pearce: But no, I think it was more just to do with wanting to help our clients. So, I was interested in, there’s the academic side, there’s the business development side, clients, getting to know clients, you know, not every day is different. I know a lot of people probably say that about their jobs, but every day is different. Different clientele, different projects. It’s not many jobs where you can drive around and think to yourself, I worked on that one or there was a dispute involving that one. Some good, some bad, but it’s a good industry to work in. The legal world is a tough world. There’s a lot of hours sometimes, but it’s it. It’s definitely worth it.

Paul Heming: What is it about the work that you do that makes it worth it?

Lawrence Pearce: I think it’s the fact that for the market that we tend to deal with subcontractors, contractors, a lot of the work we do really matters to them. Ultimately, as you’ve kind of massively pointed out earlier cash flow, everything is huge in this industry. Trying to help people to keep their businesses afloat a lot of the time. There is a major problem in the construction industry. Cash does not flow how it should do. It’s not just the money side, but you can really see when your work affects a client. Ultimately, if it’s a good result, bad result, ultimately you can see it. And it’s great to be able to have that kind of relationship with clients.

Paul Heming: I guess. So, you came into study law, you ended up now in cons, the construction space. It sounds like you really like it. What was your perspective, your perception of construction as an industry before you joined and what is it now?

Lawrence Pearce: I think there’s, I happily hold my hands up to say there’s naivety, but you know, I think a lot of people probably look at construction and think it’s a case of buildings going up, buildings coming down. I don’t think a lot of people realize the amount of work that goes in prior to construction in terms of pre-contract design, planning stages. And it really opens your eyes to the sheer extent of the industry and actually how much it affects the UK economy. I think we saw during the pandemic that the construction industry was one of the few industries that kept on going and kept the economy ticking over quite nicely. Perception now it’s a very difficult industry to work in for a lot of companies. Profit margins are tight, cost materials are high, you know, naivety when I first –

Paul Heming: Cash doesn’t flow.

Lawrence Pearce: Cash doesn’t flow. But yeah, when you first go into it, I think it’s like with anything, you don’t realize what’s happening on the ground day to day. But now speaking to clients daily, you know, I know the legal side, but the reality is what goes on day to day on site, it’s very different, but it’s good to have that balance.

Paul Heming: No, a hundred percent. And so, talk to us then about the makeup of your client base. You’ve mentioned subcontractors, you’ve mentioned contractors. Who are you typically working with?

Lawrence Pearce: We work completely across the spectrum of construction, the whole supply chain. Majority of clients are probably subcontractors, contractors. We have quite a few main contractor clients and end users as well. There is something nice about working with that sector rather than potentially much larger developers. But yeah, it’s the whole spectrum of the industry from working with an architect design teams, your subcontractors, you high net worth residential, homeowners, it’s complete spectrum.

Paul Heming: Say fans here, Lawrence, I’m a subby, so you know, you’re all right with me, mate. That’s a good answer. That’s a good answer. Okay, so what I want to talk about today is, as I said, your posts I’ve been following them and a couple of them triggered me and I thought, oh, that’s an interesting point. I want to talk about that more. I want to drill into it more. And that’s what I would like to do today. So, you’ve been posting a lot recently about entire agreement clauses. Now this is something that resonates with me and I can talk about that. But first and foremost, what is an entire agreement clause?

Lawrence Pearce: In short, an entire agreement clause is a clause that basically says the contract is the entirety of the agreement between the parties. All the pre-contract information that you may have had negotiations, unless it’s contained within the contract, tough luck. The entire agreement is that document.

Paul Heming: Only that document, nothing else because, you know, when you learn contract law at a basic QS level, right? It’s offer and acceptance, isn’t it? 

Lawrence Pearce: Yeah.

Paul Heming: So, talk to us about offer and acceptance and then contextualize all of that with regards to the entire agreement clause. So that’s basically saying forget your offer and acceptance, it’s this, right?

Lawrence Pearce: Yeah. I think the mistake happens when you send out your quotation at the start of the job. So, you send out a quotation, you’ve been approached for a piece of work, quotation goes out, you might get a purchase order back. You might have some back and forth about payment terms. You might have back and forth about exclusions in your tender documents. But ultimately, you get that contract through, you think brilliant, the job’s ours. We’ve actually agreed payment terms in a couple of emails we had. But ultimately, that contract you’ve just got through because the entire agreement clause says this is the contract.

Paul Heming: Payment terms are 60 days.

Lawrence Pearce: Payment terms are 60 days, everything we spoke about is relevant. Tough luck unless it was obviously included within that contract document you’ve been sent. And that, to a lot of people, causes a lot of problems because they go, well, what was the point in the last three months?

Paul Heming: Yeah, but are you – stuff like this, it does drive you absolutely potty, doesn’t it, to be honest with you. But so, offer and acceptance. So, I say I want to get, here’s my quote. I get back a response, I then update my quote, we then have a mid-tender meeting. I then update my quote, we have a pre-contract meeting. I then update my quote. That quote gets accepted, and I then receive a contract which says a million quid or whatever. And it says in there, this document is the entire agreement and therefore excludes everything else. And it doesn’t say refer to tender revision 1, 2, 3, 4, and five. It just says million pounds. At that point, I cannot say refer in any way, shape, or form to tender revision 1, 2, 3, 4 or five. I’m stuck with the contract.

Lawrence Pearce: You can try, you can try refer to it.

Paul Heming: Commercially, I can try. Contractually, I can’t.

Lawrence Pearce: Contractually, you can’t. And this is what [inaudible 09:56] people, it really does, because even if those documents are included, there’s other things like order of precedent’s clause, very briefly order of precedent’s clause says if there’s a discrepancy between two documents, they’ll be read in the following order. So, it might say these terms, conditions, pre-contract minutes, drawings, purchase order, and then the tender documents. And if the tender says 30-day payment terms and the Ts and Cs say 60-day payment terms, there’s a discrepancy and you can guess which one the employer’s going to choose to rely on. It’s going to be their terms conditions. 

Paul Heming: Why, why? So, I know the answer to this, but why does this happen? Why would someone writing a contract include that clause? I guess they would include it to make it simple, right? Actually, from their perspective.

Lawrence Pearce: Yeah. I think ultimate protection, isn’t it? As the employer in this scenario wants to make sure that actually the only terms that bind the party and for simplicity is that one document. And actually, it does make sense. Otherwise, let’s take the scenario of a project that’s been negotiated for months and months and months and there have been emails flying around, telephone calls, attendance.

Paul Heming: Typical project.

Lawrence Pearce: Yeah. If all of that was actually meant to form part of the contract, no one would have a clue what was going on half the time. So, the idea is simplicity.

Paul Heming: Yeah. And that makes perfect sense. And therefore, I’m guessing that entire agreement clauses are in almost every contract, right? Because it makes perfect sense. You wouldn’t want to have six months of negotiations and 10,000 emails being points of reference. You want one document to be your point of reference. So, it makes perfect sense. Where do I find it in a contract?

Lawrence Pearce: Hopefully, not hidden away in some size five font somewhere. Usually, you’re going to find it towards the start of the contract. It might be an entire agreement clause, it might be called a whole agreement clause. Usually, it will be somewhere towards the start. Typically, again, it might be towards the end of the contract, but if it’s in their beginning, middle, end, it still applies. You can usually spot it because there will be words along the lines of entire agreement. Even if it’s –

Paul Heming: At the top.

Lawrence Pearce: Yeah, yeah. Either it’s headed up as an entire agreement or the wording will say, you know, these contract documents are the whole agreement or entire agreement between the parties.

Paul Heming: And it strikes me that what is going to happen is that 99% of construction contracts, if not more, are going to have this clause in it. So, this clause is clearly not news. So why on earth are you posting about it as if everyone should, like you’re slapping them around the face with a wet kipper and be like, hello world. There’s an entire agreement clause in all your contracts.

Lawrence Pearce: I think more and more subcontractors, especially contractors, let’s just say anyone, it could be a 2-million-pound contractor, 5 million, 10 million, 20, doesn’t matter the size you are. I think there is realistically a lack of understanding within this industry. It is an industry that’s built on getting the job done. And a lot of the time, the contract takes a secondary effect. It’s only there in case it goes wrong, when actually if both parties can go into it with their eyes open, understand the clauses, implement things, issue to correct documents under the contract, actually you’ll probably avoid the dispute at the end of it. But the reality is there are time restrictions in this industry. Things need doing done quickly. Contracts don’t get issued until a Friday when you’re starting on site on Monday. How on earth do you expect a subcontractor to review a 94-page amended contract between Friday and Monday? Or better yet, you’ve started on site and the contract hasn’t been sent out until two weeks after you’ve started.

Paul Heming: Yeah, no, completely. So, I mean, I get frustrated now when I’m not involved and I’m thinking about this, how frustrating is it for you, honestly? How often do you bite your tongue when guys come to you and say, so this is the situation, I don’t know what this entire agreement clause means, but I’ve signed it and also, I started on site three months ago. There must be so many times when you are biting your tongue when clients come to you and say, this is the situation I’m in.

Lawrence Pearce: Yes. I think I’ll always promote, you know, prevention is better than cure at the end of the day. And I hate having to say to a client, look, not to kind of rub salt into the wounds, but if you’d come to us three months earlier, we could have stopped this. And I think there’s a reluctance within the industry to approach lawyers until it’s too late. It’s basically a dispute comes up and then it’s a, oh, we better go and speak to lawyers rather than actually if we get someone involved early and talk through the process of entering into the contract, we understand the risk we’re opening ourselves up to. If you can manage that contract better or understand these clauses, the chance are reality cash flow wise, you’re more likely to be profitable, there’s less likely to be disputes. Everyone’s a winner.

Paul Heming: So, let’s talk prevention then on this particular topic because prevention number one as I see it is to understand that there’s an entire agreement clause. If there’s an entire agreement clause, try and get your tender. Let’s go back to our example. I did four revisions of my tender, let’s get them all in this document or get the latest one in there. That goes in. Oh, relax, I’m absolutely sorted. Now hang on a minute. No, I’m not, am I? Because as you just said, what will happen is there will likely be a discrepancy clause or an order of precedents clause, and as you said, guess what? My tender will probably be, as a subcontractor, the least important document. So, what do I do now?

Lawrence Pearce: This is a difficult one. 

Paul Heming: Do I just run away and say I don’t want to work with this guy?

Lawrence Pearce: This is a difficult part of the industry because ultimately if you don’t sign up to those terms, someone else will. And there are plenty of subcontractors and contractors who will do the work. So, to a certain extent, you’re held to ransom. Clients will often say, well, I need this job. This is a job we’ve signed up to. And the thing you can only do then is manage risk. Now if you know that their terms are going to override yours, then are you better off not understanding those terms fully and operating them correctly to give yourself the best chance of succeeding damage limitation to a certain extent.

Paul Heming: Sorry to interrupt you but you’re saying get me involved early and I can help prevent this. So, let’s put this into action. Let’s get you involved early now, right? So, I come to you and say, look, this is the situation. There’s an entire agreement clause. They’ve put in my tender, but it’s kind of worthless because it’s ranked number 10 of 10. So, it’s not going to ever work. What should I do?

Lawrence Pearce: Ultimately, you want to try and get your tender ranking as high as their terms and conditions at the top. Reality is unlikely to happen because you’re probably going to get responsive no. But the next step then is, as I said, the only thing you can do at that stage is go, okay, well do we want to take on this project? And if we do, are we going to run it in a way that still makes it a successful project by understanding those clauses, understand those terms? And that’s where I would come in and say, well, a contract review, for example, at least have a contract review done so that you understand these clauses. And then potentially have a client management sheet that goes on top that points out when your variations should go in, should point out when your delay notifications have to go in payment. So at least then when you grab that contract and you’ve got 10 jobs on the go, you can look at it and go, this is the one where we need to notify within three days. I can do this. You know? 

Paul Heming: Completely makes sense. I used to call it like a contract audit almost where lucky to get it onto one page, but you know, like two or three pages you’d give it to the entire key stakeholders on the project, and they would be like, you know, all those key bits. But still it’s frustrating, isn’t it? Because I think you’ve hit the nail on the head there with something that you said because we talked about this a few weeks ago on the show. You just said if you don’t sign it, someone else will. And I think that is hugely problematic for the entire industry, right? And actually, I want to talk to you about that specific point, but we’ll do it right after this break.

Entire agreement clause is bloody well, I never. So as I said just before we jumped out for a break there couple of weeks ago, probably a couple of months ago actually, episode 109, episode 113, I think, chatted about with two different experts about subcontractors and how they should be better at saying no. Little bit of me feels uneasy with this because it’s a bit unfair to that subcontractors should be the ones to say no, that actually it’s not them causing the problems most of the time. But you just said if they don’t sign up to it, somebody else is going to sign up to it. So, it’s going to be difficult to argue that order of precedent’s clause, which I agree with and I think is correct. My question to you as I think it’s unfair to call you an outsider looking in, but you understand my point, I hope. Do you think subcontractors should just be saying no?

Lawrence Pearce: Yes, but there is a big underlying there in capitals, but I think in reality it’s never going to happen. Ultimately there will still, even if a lot of them say no, there is still going to be someone who says yes and there needs to be a kind of an overhaul of the way these contracts are drafted or the way they’re run. I don’t just think its construction. There’s a lot of sectors where there’s a dominance of the market. So, it is a real difficult one. How do you solve a problem like this? 

Paul Heming: But do you think construction contracts are unfairly weighted?

Lawrence Pearce: Yes, but I’m going to come out with another caveat that is ultimately –

Paul Heming: You are such a lawyer.

Lawrence Pearce: Well, I’m going to have to sit on the fence, aren’t I? If you are, you know, the courts view on things like this about two parties entering into a contract is that both parties have bargaining power. You don’t have to enter into these contracts.

Paul Heming: Not if someone else will sign it.

Lawrence Pearce: Exactly.

Paul Heming: Competition will just sign it.

Lawrence Pearce: But if there is an education through the industry, maybe, and that’s what I’ve tried to do with LinkedIn post and then helping clients is that with a bit of knowledge can go a long way. And even if we can’t potentially change these clauses or change the industry, which I think can be non-impossible, unless you do get every subcontractor or contractor saying no to these clauses, the best thing you can do is educate. And if people understand and appreciate what they’re signing up to, at least that way you should find people are managing those contracts better and they’re not as a big an issue as it would be if everyone just carried on with slight ignorance to go, okay, well just got to do the job.

Paul Heming: That’s part of the thesis of this podcast really is we want it to inform, educate, and just give people that knowledge, that framework to be able to push back and understand it. And slowly but surely, if more and more people are understanding it, like that’s why I love what you are doing with your posts, you know, it’s digestible information that is actionable, take it away and just feel a little bit stronger as opposed to just kind of nothing changing. So, I’m hoping we’re moving things in the right direction and I echo your sentiments.

Lawrence Pearce: Yeah, no, I’ve seen a change over the industry over the last couple of years where lawyers aren’t seen as that kind of, we better kind of go out and get you a distress purchase and go, yeah, we need lawyers because we are in a dispute. Actually, we’re seen starting to slowly be seen actually educational and you know, we as a firm, the things I do is a lot of training going out and that’s definitely increased over the last 24 months post Covid. People seem to want to know more, whereas a couple of years back I think people were just quite happy to just get the job done and only use potentially lawyers if it went wrong. So, people are starting to want to learn more and I’ve definitely picked up on that from posts that people seem to want to be educated rather than not.

Paul Heming: It works both ways though, right? It’s the fact that people like yourself are actively trying to educate the sector, educate people so that they have better control of the huge risk that they’re managing that. So, it comes full circle, doesn’t it? And that’s why I’m completely on board. I’m not just saying this, the posts that you do are fantastic and they really resonate. I was a subcontractor as I’d probably say far too often on this show and even today, but the number of times that I heard the phrase “You’re being too contractual” was ridiculous. How does that make you feel?

Lawrence Pearce: Frustrated for clients because I don’t imagine how they feel when in response to asking for payment or response in asking for a certain document under a contract. They get told they’re being too contractual. Kind of don’t understand why it’s seen as a kind of a “how dare you ask for a document under the contract?” 

Paul Heming: You kind of meant that you were onto the right cent is what I thought. If someone said that to me, you’re being too contracted. Oh, okay.

Lawrence Pearce: Yeah, yeah. And it’s a bizarre one because when you think about it, these contracts are drafted by your employer or passed downstream, it’s their document and you referring to clause 7.1 because you want to refer to the payment mechanism or if you want to refer to a delay notice and then you get told stop being so contractual or you are being too contractual. The contract’s there to protect both parties, isn’t it? 

Paul Heming: And going back to our order of precedence issue, as soon as soon as that problem comes up and I bring out my rev four tender or whatever it is, I’m pretty sure my client is going to say, yeah, but don’t worry clause blah says that my document takes precedence.

Lawrence Pearce: It seems to be the phrase that your two contractual only works one way. 

Paul Heming: Yeah, yeah.

Lawrence Pearce: When it’s the sub-contractual contractor asking their employer or clients.

Paul Heming: So, when we hear that phrase, if we hear that phrase, how should we respond?

Lawrence Pearce: I suppose it’s just reminding the person saying it or the company saying it that ultimately is a contract, 9 times out of 10 drafted by them, you are referring to the clause because you want to make sure that you are doing what you’re meant to be your obligations under the contract and you’re simply in effect doing as you’re asked. If you need to notify under clause 7.1. I don’t see why you shouldn’t be referring to it. So, I think it’s just a polite reminder to, I don’t think being contractual is a negative thing. It’s a positive thing if it’s done in the right way, doesn’t mean you need to be aggressive over it. Just case of referring to the contract. I think it’s just explain to your client why you are being contractual.

Paul Heming: How would you do it in a non – what would you perceive to be an aggressive way? What would be the right way to communicate?

Lawrence Pearce: I think often in this industry, it usually relates to things like payment or come to charges for example. The habit is to, obviously the emotional side kicks in, it’s your business, it’s your money and that’s when you start writing emails or letters that tend to be with an emotive stance rather than actually winding it back slightly and just thinking about it from a commercial perspective and trying your best to draft in a way that is referring to the terms you want, but not going OTT to the point of where it’s going to ultimately wind someone up on the other side. It’s a fine balance at the end of the day.

Paul Heming: It’s not easy, is it? Particularly when you’re emotionally attached to the result. So yeah, it’s a tough subject, isn’t it? And certainly, got frustrated many times when people were saying that to me in the past. So, another thing that you said on LinkedIn, Lawrence, was you asked the question really to the ether that is LinkedIn you put out there, how long do you spend on your tenders versus how long do you spend reviewing the contract? What was the reason for that question?

Lawrence Pearce: I think the amount of hours that I’m told of that a spent putting a attender together is –

Paul Heming: Lots.

Lawrence Pearce: Yeah, as you well know is a vast number. The detail that goes into it, the looking over drawing specifications to try and figure out how your prices work compared to when that contract lands. It’s got to be 10, 20, 30 fold the amount of hours that are spent. And often a contract comes in and it gets put in a cupboard and they’re not reviewed. Or if when we say reviewed, a lot of comments you’ll get are, well there’s no point because they’re never going to amend it. So, what’s the point we reviewing it?

Paul Heming: Well, it goes back to our previous question though. Previous point, even though of someone else is going to sign it.

Lawrence Pearce: I don’t think it’s reviewing it for the purpose of pushing back and refusing to sign it. I think it’s reviewing it for the purpose of understand your obligations. Because if you understand your obligations, you’ve got a hope of being able to deal with the contract properly, which ultimately would hope affects profitability.

Paul Heming: So, is your experience then that people sign contracts and then don’t review them because they think, “Well, it doesn’t matter. I’ve got to sign this, it’s gone to my head. Do I want the job? Yes, I have to sign it, so I’ll sign it.” But it sounds to me like the concern that you’re expressing is A that but B, that if you are going to do that, at least understand what is in it. Don’t just close your eyes and kind of wince and cross your fingers, your toes, and just hope that you never have to look at it.

Lawrence Pearce: It’s like getting on the boat without a life jacket or on a plane without. It’s just you. That’s that one level of protection you’ve got there, haven’t you? If you at least understand what you’re signing up to. And I’m not saying you need to understand every clause, but even understanding variations, delay, payment, notification obligations, termination, key clauses, at least then you’ve got your eyes open to it and you have a better chance of succeeding if you simply go, “Well, what’s the point? Someone else will sign up to it.” We’re not saying turn the work away, take on the job, but take it on with open eyes.

Paul Heming: Yeah, and complete comprehension of what is actually going to happen. It’s that contract audit document that I did, I used to do. It’s something that you’ve got a different name for it, but – and to be fair, the majority of contracts are going to chime, aren’t they? They’re going to rhyme. None of them are identical. But what, so what for you are those key? Not, I don’t want clause of blow-by-blow account of the clauses of the JCT, but you talked about a single pager of things that are essential. What must you know?

Lawrence Pearce: Payment, variations, delay, notice provisions of where certain documents got to be issued to. But I think a lot of these tend to be what’s known as condition precedent clauses. Clauses that require you to do X, otherwise you use your entitlement to Y. So, for example, if a variation occurs on-site, you must notify us in writing within three days. 

Paul Heming: Five days.

Lawrence Pearce: Yeah, five days would be lovely.

Paul Heming: That’s generous. Isn’t it these days?

Lawrence Pearce: You know, you sometimes see them say one day, but you know, you must notify us within three days. Should you fail to do so, you’ll lose your entitlement to payments.

Paul Heming: It’s got to stop that, hasn’t it? One day, one day. It’s just, it’s almost disgusting. Like, it just lacks so much empathy putting that into a contract.

Lawrence Pearce: Yeah. And I think if anyone looks through any of their contracts in front of them, they will find a condition precedent clause, which will be, you know, variations or if you become aware of delay or you ought to become aware of delay, you must notify us within five days of that delay. Otherwise, you lose your entitlement to an extension of time, which means then you’re exposed to loss and expense.

Paul Heming: Yeah, I mean, in some ways, I completely understand it from the main contractor to subcontractor, right? Cause the main contractor’s got to go and put in their EOT to their client and there’s all of these chains. But it really leaves a bad taste in the mouth. The one-day amended variation causes amended EOT calls where you’re given hardly any time. It’s just, I honestly think it’s disgusting.

Lawrence Pearce: The reality is, how can it possibly get from the site team to the office within that time span? Because often, as I mentioned earlier, what happens on site is very different from what might be happening at head office. And it might be a verbal instruction on-site that the clause requires to be then sent back in writing before it is approved. But in the meantime, you’ve still got to get on with the work but you risk not getting paid. Clients will often say, “That’s not fair. I’ve done the work,” but these are the clauses that you should highlight so people don’t get into those situations.

Paul Heming: Yeah, and also those are the clauses that, you know, I couldn’t recite the JCT to you right now, but if it’s three days or one day, that’s usually an amendment, right? It should be five days, right? Or seven days or whatever it is in the JCT. So, you know, going back to how long do you spend looking at your tender versus how long do you spend looking at your contract, if you were to look at your contract and say, my experience at least is that where you’ve got those stupid clauses where it’s one day or three days and you think, “What are you doing?” It is quite easy to negotiate back to the standard form of contract JCT, where you could say to them, “I’m happy to sign your contract, but I’m not going to sign that where it’s one day.” The JCT was drafted by the Joint Contracts Tribunal, although it’s designed to be fair and balanced as much as it could be, I will sign up to those periods and that is that, and most of the time that’s not considered too unreasonable.

Lawrence Pearce: Yeah, I think ultimately, if you can’t remove a clause like that, i.e., so it’s just, you know, you can do the variation, etc., and you’ll be paid for value on a fair and reasonable basis. If you can’t remove a condition precedent clause, you need to mitigate. So, you change it from three days to seven days or 14 days, but at least enough time. And then, like we said, if you’ve got an operational checklist on the front of your contracts, it’s not just the site. The guys in the office need to know, it’s the site team that needs to know because the guys on-site are the ones that might get a verbal instruction that needs to report back up. And if they’re all seen off the same hymn sheet, there’s a good chance you’ll at least be able to evidence your variation.

Paul Heming: It’s a lot for SMEs to get through though, isn’t it? It’s a lot to manage, and you can see why people don’t because that process we’ve described there makes it sound quite simple, don’t we? But that’s a lot of resource, and that’s a lot of resource that is defending, not attacking, if that’s the right way of putting it. Not that you are going out on the attack, but that is just really saying, “The contract was a hundred grand, how do we get a hundred grand?” as opposed to, “How can I build the business, get more money?” It’s nuts, seems so counterproductive to me.

Lawrence Pearce: Well, I think the trouble is you spend so long trying to win the work, but then if you sign up to it and then on top of that, there are discounts being applied, or you know full well that you’re not going to get paid the money on the final account, it’s not worth the paper it’s written on. It can say a hundred thousand, it can say a hundred million, it’s all going to be irrelevant if you don’t get paid this figure. And it doesn’t matter if the contract’s a hundred thousand or 10 million, the clauses are still the same at the end of the day.

Paul Heming: No, no, you’re completely right. So fascinating stuff. I guess one of my final questions, I wanted to ask you about now is we have been in quite a turbulent economic period, perhaps not that turbulent, but I mean the last year has been unusual, let’s say, and the next year kind of, let’s see where that takes us. Are you experiencing more increased distress from your clients where payments are now harder to get, final accounts are harder to agree? The answer is yes.

Lawrence Pearce: I think ultimately, I’ve taken two or three calls today from longstanding clients and new clients saying similar things, which is people just don’t seem to be releasing cash. Whether it’s retentions or just an interim payment, the excuses coming out are, you know, you’ve missed this month’s payment run, for example. It’s not all about the cash in the industry, but people are feeling it. Contracts are being terminated possibly because people can get the work done elsewhere at a cheaper rate. It seems to be quite a dispute-focused industry again. For the last couple of months, there seemed to be a period where it slowed down a bit, it wasn’t as aggressive. But yeah, for whatever reason, starting in 2033, it’s definitely been more dispute-heavy.

Paul Heming: So, that’s not good news, but tell me, what is the single piece of advice then that our listeners can go away from? Nothing is perfect. Each project is subjective, each contract is objective. But what is your single piece of advice today for people who are managing construction contracts to do a better job in this climate?

Lawrence Pearce: I think, without saying seek advice early, ultimately there are people, consultants, lawyers who can assist early on. But the reality is, with things like payment delays, don’t just hope for the best. I think the best thing you can do is communicate in writing. Set out if you do have issues with your client in writing, don’t rely on phone calls. A lot of the time, at least have it there because ultimately paper trails do matter. But speak up, especially on payment. If you’re due to be paid on the 30th of the month, don’t wait until the 14th of the next month to start asking questions. A polite reminder on day one goes a long way to say, “We appreciate oversights happen.” A week later –

Paul Heming: “Where is it?”

Lawrence Pearce: Yeah, a week later say, “Look, we wrote to you last week about oversights, but we’re still not being paid. We should be paid Friday.” And then start looking and speaking to people who can advise you regarding things like suspension because it keeps cash away. But sitting and hoping and going, “Oh, we’ll sort it next month, we’ll sort it next month,” this is an industry where insolvencies are high, and cash flow and a slowdown in payment of interim payments usually are flagging signs there might be something up at the other end.

Paul Heming: And on the topic of subcontractors and main contractors, the main contractor is maybe paying 10 subcontractors a month. And guess what? The one who isn’t complaining is the one who isn’t getting paid because –

Lawrence Pearce: Yeah, we’re not saying, you know, it is the phrase like he who shouts loudest gets paid. But there’s a difference between shouting as in polite reminders and being aggressive. You can still remind someone that they haven’t paid you without being aggressive. And follow that if you’ve got strong internal processes, you are more likely to succeed. I think, have those processes in place with payment, your accounts team, everyone knowing when the actual payment dates are, etc. It can make one hell of a difference.

Paul Heming: Fantastic. Well, Lawrence, it’s been an absolute pleasure to have you on the show. It’s been really insightful. I am going to be sharing your LinkedIn and obviously details of the company that you work for. I’m sure we will speak again and thank you so much for coming on the show.

Lawrence Pearce: Absolute pleasure. Thank you very much for having me.

Paul Heming: Pleasure is all mine and everybody, I will speak to you as always next week. Have a good one, and I will speak to you soon.

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