EP 143

Paul Heming: Hello and welcome to episode 143 of the Own the Build Podcast with me, Paul Heming. Have you currently got yourself on a project where you’re coming close to the end and you looking to get a proper final account statement in place? If you are or if you’ve already got one and you want to see how other people do it, we have created a final account statement template. I want to put that in the show notes. Obviously well worth looking at, well worth considering what other people are doing in the market. We’ve taken it from a lot of final account statements that we’ve done and tried to create a really unique one. So hopefully you find that useful. It is in the show notes for you. In the studio today, we are joined or I should say rejoined by an experienced construction solicitor, Samuel Balden, who is partner and head of dispute resolution at Homes and Hills. Samuel is also the chair at Constructing Excellence Essex and like the rest of us, he is very passionate about construction and he’s actually smiling and smirking at me, so I think he’s happy to be here talking with me. Sam, welcome back mate. How’s it going?

Samuel Balden: Cheers, Paul. Great to be back. Yeah, it’s going really well. As we were saying just before the show, really busy at the moment. There’s so much going on. Lots of positive things.

Paul Heming: Excellent stuff and we’ll get right into that. But you were obviously on the show a couple of months ago. Got great feedback from that. Some people will recognize you, some people will recognize you from your Epic endless LinkedIn posts that you do, which everyone should go and check out. So I’ll link your LinkedIn, but just ground the conversation for us, Sam, with who you are, your experience and what you’re doing now.

Samuel Balden: Yeah, okay. So for those that don’t know, as you said, I’m a partner at Homes and Hills Solicitors. I’m the head of dispute resolution. My caseload day-to-day is construction. So mostly contentious, but some non-contentious as well. As I said last time I was on, my favorite thing that I do by far is the training sessions with clients, teaching them how to avoid getting into disputes in the first place, streamlining their sort of processes, those sorts of things. But you know, I think I said it last time, I’m a fighter by nature.

Paul Heming: Scrapper.

Samuel Balden: It’s a scrap to be had. Yeah. If there’s a dispute we come in and we’ll do our very best to get that resolved for people as quickly and cost-effectively as possible.

Paul Heming: Yeah, no, absolutely. And I was always quite charm by the fact that you said you like the non-contentious stuff more than the contentious stuff because maybe I’m misinterpreting it, but I thought that would kind of be a relatively unique position to be in. Because almost the debate and trying to twist people’s arms would be a solicitor’s, not bread and butter, but that’s where the real craft and joy is.

Samuel Balden: Yeah, I mean, I enjoy both, don’t get me wrong. There’s craft and joy in both. I think pitching the non-contentious stuff to clients. I’ve talked a lot about the training stuff we do before. I think there’s a real skill in explaining some fairly complicated concepts of construction law to somebody that doesn’t have a legal background that’s might have come up on the tools and now running their own business. It’s not the same as going into a room full of lawyers and explaining a legal concept. It’s a very different skillset set.

Paul Heming: Yeah. Well, we are going to put that to the test today I reckon. So we’re going to try and explain some complex legal terms and roots for payment mechanisms and the like today. Before we do that, I want to just to get a picture for how you see the sector. Because you come at it from a pretty unique standpoint in that people are either coming to you for non-contentious work or I guess more coming for contentious work. Something has happened, they want to resolve it. Today we are going to talk about payment and getting paid today. How are you seeing the market? What are your clients telling you about where we’re at today? Anecdotally?

Samuel Balden: The first word that popped into my head there was volatile. Now we’ve had a period where people have been struggling to get labor, material prices are going through the roof. You know, we’ve had a number of big companies go pop. It’s a difficult situation to be in, people are getting squeezed and we are seeing that in the dispute resolution work that we do.

Paul Heming: Okay. No, that makes sense. And so we were chatting about payment prerecording. You’ve written a really nice piece to us about how to get paid and you talked a lot about almost like the misinformation that you sometimes hear. So you’ll be sat down with your client and I’ll be saying, I want to get paid. This situation has happened. I’ve heard X, Y, and Z in the pub about my mate said you could do this, or maybe we could do that. When we were crafting this episode and then what we were going to talk about. Can I ask why you used the phrase misinformation? Because in this context I thought it was quite a unique bit of language.

Samuel Balden: I think it comes off the back of a lot of conversations we have, as you just pointed out with lay clients that will come to us with a problem. And most construction disputes ultimately always come down to a question of who’s paying who what and who’s unhappy about that. The misinformation point comes from clients will often come to us with an idea about what they can do or how they can do it.

Paul Heming: To get paid.

Samuel Balden: Yeah. They don’t necessarily understand the process or the different options and said it quite tongue in cheek. It’s what their friend down the pub has told them. Now their friend down the pub, I’m guessing in most instances probably doesn’t have a law degree or decades of experience as a construction lawyer. So it’s in that context that the information they’re getting is not necessarily that accurate.

Paul Heming: Okay. So let’s talk about, it’s always better to exemplify this, but we are in a podcast here where we haven’t got a particular, I’m not coming to you with a particular problem where I want to get paid, but imagining you are taking loads of phone calls, I’m a main contractor and my client isn’t paying me the way I think you should be paid. Or I’m a subcontractor and my main contractor isn’t paying me the way I think I should be paid. I guess when that happens, what do you do? Like what’s your first gut instinct? I’m the client calling you telling me about this problem. What information do you want from me and why?

Samuel Balden: So probably the first question I’ll ask straight off the bat, how much are we talking about if it’s Bob the builder who’s done a domestic extension and he’s owed five grand, that’s very different to a big main contractor that’s owed 5 million? That is going to affect the approach you take. I use sort of fairly extreme examples there, but…

Paul Heming: No, I think that’s good to exemplify it like that.

Samuel Balden: Yeah. So that will always be the first question because firstly I’ll already be starting to think, well, okay, what options might be cost effective? Who should be doing the work? Should that be something I should be doing with a team of people supporting me? Should I be looking to delegate that to a more junior lawyer to keep the cost down? The second question that I think is always going to be really important is whether the debt is disputed. So is there a reason you are being given for why you’ve not been paid? Are they trying to deduct XX thousand or X million pounds worth of LEDs? Are the claims about defects? Are the claims about the payment just simply not being due yet? You know, there’s all these sorts of things to investigate that…

Paul Heming: Again, and I’m guessing when they come to you and say, no, the debt isn’t disputed, you breathe a big sigh of relief and think, oh, that’s made everything a lot more simple. But I’m guessing it doesn’t happen very often.

Samuel Balden: I take it with a pinch of salt actually, because quite often it will happen. Sometimes it means…

Paul Heming: What will they say? There’s no dispute I’m owed it.

Samuel Balden: Yes, sometimes it means there isn’t, in the client’s opinion, a valid reason for disputing it, which is not the same as there being no dispute. Sometimes it will be a case of saying, is it disputed? They’ll say no. But actually when the paperwork comes through and we start to dig into the detail of it, there quite clearly is a dispute. And then going on from that, there’s a third question that I would always want to ask quite early doors, which is what stage of the project are we at? Are we still on site? Is this an interim payment? Are we at final account? Have we just got PC and we’re arguing about the final account? Have we been offsite for 12 months and it’s the final trench of retention? Where are we in this process? Because again, that’s going to affect not just legally the steps that we can take and the appropriate steps, but also if we’re still on site, we’ve got however many months still on site. If we have a fight now, it’s not to say we shouldn’t, but we have to think about knock on implications equally if this project might be coming to a conclusion. But if you are on site with five other contracts with the same party, there might be cross contract set off clause and all sorts of things that they’ll try and pull into play. So it’s just looking at the big picture really.

Paul Heming: I think that those three give us actually a really good framework for the rest of this conversation because, so I’m going to reiterate number one being how big is this dispute? Is it a grand or is it a million pounds? That obviously sets you on two different courses then is it disputed or is it undisputed? Again, sets you off on a different set of courses. And then where are we in the project? Are we in the middle of the site or are we two years after PC and we’re trying to get the retention because again, that then shifts your mindset in terms of how you are going to act for various different reasons and everyone listening will understand that. So it’s great to understand that that’s your thinking because even before you get to the point of a construction, getting to the point of picking up the phone to you Sam and saying, God, I’ve got this big problem, I need a solicitor or whoever to deal with it. It’s quite interesting just to understand that logic and framework that you have because almost you could apply that yourself before picking up the phone to sister. And you know, in terms of that commercially, where am I? How much is it, what should my process be? I want to start then with question one, how big is the dispute? So if we kind of stick with two numbers, I’m going to stick with 10 k being in the low end and 1 million being in the high end, this is the money that we’re owed. It’s either 10,000 or a million. Now the way I would kind of see your options would be at the lowest level it would be commercial agitation or you’d create contractual letters around the money you wrote and explain it why you should be paid it from like a project level all the way up to, or the highest level of dispute. Maybe you’re going to correct me, it would be like arbitration almost. So if you’re going from a letter to arbitration as like your range of options, what do you see? If I said to you I’ve got a 10 K dispute, what would be my options? And then the same for if I had a million pound dispute, what would be my options?

Samuel Balden: You’ve got the options as you said, you’ve got the option of writing a letter to them. Seeing if that makes a difference.

Paul Heming: Probably won’t, will it?

Samuel Balden: The reality is probably by the time you are picking up the phone to me, you’ve already tried that, you’ve done the emails where everything’s in capitals and you’ve picked up the phone and all that sort of stuff. You’ve probably tried that. It’s fair to say that sometimes a letter from a solicitor will have a little bit more impact, but it doesn’t always, you’ll get people that know how to play the game and go, oh, it’s just another letter, we’ll put it in the shredder and that’s that. You’ve then got, you might have a right to adjudicate. You might have a contractual right to arbitration. There’s options to try and do a deal. That’s always something you should consider whether that’s a sort of a formal mediation process or a round table discussion.

Paul Heming: When, just stopping on that point, when you say you’ve got the option to do a deal, I’m listening to that as an ex subby and I’m thinking, obviously I’ve always got the option to do a deal, but I can’t get them anywhere near a table to even have a conversation. So how do I get there?

Samuel Balden: Okay, so if you’re looking to try and do a deal, the way we would always approach that is right, you need the stick to beat them with to get them to the table to then do a deal. So it’s got to be against the threat of something like adjudication court proceedings, a winding up petition, but knowing that actually what you want to do is a deal. Because it’ll probably going to be more commercially viable to do that. So yeah, just finishing off on what I was saying about the options, there’s always options around potentially serving a winding up petition court proceedings, but that’s the breadth of options and they’re applicable whether it’s 10K or a million, however which ones correct is going to depend on the answers to the other questions.

Paul Heming: Yeah. Okay. But for instance, if I came to you with a 10K problem, I’m guessing you’re not going to suggest to me, let’s go to arbitration. That’s going to fall away from one of the likely options, right? In that you’re probably going to say, let’s wind up or I don’t know, that’s kind of my question. Is there stuff that filters out of your options if it’s 10K and there’ll be people sat here thinking, oh, that 10K is incredibly important to me and I’m owed it, how do I get it? Arbitration wouldn’t be on your to-do list. I guess.

Samuel Balden: I would say arbitration wouldn’t be, and that’s because of the costs of doing that and having to pay the arbitrator’s fees, et cetera. It’s going to be difficult to make that commercially viable.

Paul Heming: Yeah. So it would be what, it would be lawyer’s letter, potentially winding up petition, potentially adjudication, but even adjudication would people think, nah, he’s not going to adjudicate for that.

Samuel Balden: Do you know what? We have done adjudications for as low as about 10 grand.

Paul Heming: Really? Okay.

Samuel Balden: Yeah, only for the most simple disputes though something like a smash and grab adjudication, which is a term that a lot of people would be familiar with. For those that aren’t, it’s a, you owed the money by default because the paying party hasn’t given you a payment or a Payless notice on time. So the amount you’ve applied for has become due by default. The RICS do a summary adjudication procedure for anything that’s considered to be simple enough with a value, a claim value of less than 20,000. So those sorts of things can be run quite cost effectively. So although in adjudication you can’t recover your costs, you should still come through that process having more money in your account than you had beforehand. A decent proportion of that 10 grand can still be put back in your account.

Paul Heming: And it may be, and again this is where I guess the following questions of like, is it in dispute? Where are we in the project will then play into maybe actually we do want to do it because we’re halfway through the job and we want to set a precedent of we’re not going to be messed around or whatever. That’s really interesting because perhaps incorrectly, I used to always think, well if it’s 10K and so often these little things build up, right? It’s the 10Ks in 10Ks, it’s all of a sudden 70K because there’s seven of them. But that you probably wouldn’t be able to adjudicate on that because you probably wouldn’t be able to make it stack up. But from what you’re saying there, that isn’t necessarily always the case.

Samuel Balden: It’s not always the case that 10K wouldn’t be worth adjudicating on it. You know, it’s always worth us having a conversation about it. I’d say in the majority of instances, it’s probably not going to be, if we’re arguing about defects and things like that, it’s going to become more complicated and the cost of the adjudication are going to be disproportionate to the amount you’re trying to recover, something like smash and grab. You could probably just about make that work.

Paul Heming: Okay. So let’s go on to point number two now, which is, is the debt disputed yes or no? You say that when most people pick up the phone and say, no, no, no, it’s not disputed, I owed this money.

Samuel Balden: I wouldn’t say most people. I’d say most debts probably are disputed for one reason or another. The relevance of whether it’s disputed is subject to the answers to certain other questions. You know, such as where you are in the project and things like that. The prospect of a winding up petition becomes more valid if it’s not disputed and it’s never been disputed. If you can establish a right to a payment, then that becomes a legitimate strategy. If you already know that it’s been disputed, then issuing a winding up petition is a non-starter.

Paul Heming: Could you just talk through what a winding up petition is for context?

Samuel Balden: Yeah, sure. So that is effectively a type of application that you issue in the court seeking an order that the debtor company has put into liquidation on the premise that they’re insolvent, they can’t pay their debts as them when they fall due. So they should be forced into liquidation.

Paul Heming: So, like a simple example of this Sam would be, and thinking about your three questions I’m owed 30K, it is never been disputed, but that 30K is to do with the second half of retention. It’s never been disputed. That second half of retention, I’ve asked for it for the last six months. They’ve never said that they can’t do it, they just haven’t done it. So therefore I think they haven’t got the money and therefore I could in theory choose a winding up petition as a sensible route.

Samuel Balden: Yeah, it comes with its risks because what people are doing is they’re issuing that petition or threatening to issue it in the hope that the debtor is concerned enough about being put into liquidation that they will somehow find the money and pay it before that happens. It’s a bit of a nuclear option because sometimes you’ll be doing it that at the point where they genuinely can’t pay and all you are doing then is throwing more money, good money after bad, you’re paying a fairly substantial court fee. You’re paying the lawyer’s fees, you’re pushing the company into liquidation, at which point there’s never enough money to pay everybody off. So the client company isn’t going to get what they’re hoping out of it. So it’s a bit of brinkmanship with a winding up petition.

Paul Heming: And so to make it really simple, if you submit a winding up petition, it says to the company they’ve got X number of days or weeks, whatever it is to pay this invoice, which otherwise wasn’t disputed 20K and if not, the court would effectively start liquidation proceedings.

Samuel Balden: No. So typically the way we would work is we would normally prepare the petition in draft and send it to the debtor company and say, look, you’ve got to 24, 48, however many hours to pay this, or we are going to go to the court and we’re going to pay the court fee and we’re going to issue this petition. As soon as that petition is issued, that starts that process with the court, the court will list it for a hearing and if it’s not paid at the point of that hearing, unless the debtor company can prove that the debt wasn’t due for some reason, then the court will put the company into liquidation.

Paul Heming: So I mean that the process you just described is exactly how I used it in the past. So the reason why I was talking about retention is, it’s typically isn’t disputed unless there has been some defects or whatever. And we would always do that. Our process would be that we would, we wouldn’t have the draft winding up petition, which your version is even scarier to the company, right? We would just say we’re going to issue a winding up petition if we don’t have payment in X number of days. It’s a nuclear option, but you’ve left us no choice. This is what we’re going to do. And quite often people who we knew had the money, but were just holding it because better in their bank account than ours would end up paying. But what you are actually saying is you basically have the one in petition ready and you say, it’s happening guys, you’ve got 48 hours, give us our money or we’re off. And at that point, if you are the company on the other side, right, who has the money, just doesn’t want to give it to you, you’re definitely going to be releasing that money then, aren’t you?

Samuel Balden: Yeah. Unless they’re clever and they understand the procedure. So one of the things, going back to that question about whether it’s disputed, they can at that point tell you about a dispute. Now the courts are not going to be impressed if you’ve been chasing that money for six months and they’ve never ever once said there’s a dispute. But as soon as you threaten a winding up petition, all of a sudden there’s a dispute. You know, the courts, they’re not stupid. However, if there’s been a hint of a dispute, then if you threaten to toddle off to court and get a winding up order. I’ve been on the other side of these and I’ve had clients served with a winding up petition when it’s completely inappropriate because there’s a genuine dispute. Anybody that’s quite savvy in that situation when they receive the petition or the threat of a petition can respond very, very forcefully. If you get it wrong and you issue a petition when there is a genuine and substantial dispute or a counterclaim, then actually what you can end up is on the wrong end of an injunction. So that’s a court order that says you cannot advertise this petition because that’s one of the steps you have to go through is advertising it in the Gazette and you end up paying the costs of those court proceeding to get that injunction against you.

Paul Heming: So, oh, you’re making me scared now, Sam.

Samuel Balden: Well, it’s one of the, and this is the point though, this is why it’s really important to understand the full picture because it’s one of the conversations we have quite frequently. Clients will come to us and say, I just want to do a winding up petition. Okay, is the debt disputed? Yes, well we can’t do it because you’ll be on the wrong end of some court proceedings and the conversation will quite often go, but the dispute isn’t a valid dispute. You know, all the reasons they’ve got for not paying…

Paul Heming: It doesn’t matter.

Samuel Balden: They’re spurious. Well fine, but actually we’ve got to persuade the court of that before we can take steps to enforce the debt.

Paul Heming: And so just going back to you saying the court, let’s stick with my example, right? 20K I think I said for this retention that I’m owed.

Samuel Balden: It’s gone down by 10K I think now.

Paul Heming: Oh, was it 30K?

Samuel Balden: You’ve done a deal with yourself?

Paul Heming: Damn it. 30, let’s say 30K, then let’s stick with that. It’s been 18 months after PC now, since PC I’ve never had a noise from the client that there is anything wrong. 12 months after PC I was asking for it, it’s now 18, I’ve been chasing it for six months, I’m just not getting it. Nobody said a word. I therefore view that as there’s never been a dispute, I’m just not getting paid. What if at some point in that defects liability period, one of the project managers sent an email to us saying, just by the way, there is this minor issue with one of the windows or whatever, which means that we need to get that sorted by the end. They’ve never said it formally, by then send them a winding up petition and they respond and say, no, no, no, no, no, we did mention that there was this issue. Is it as simple as that that the court would then frown upon us putting in a one? I know it’s hard to say, but that’s the sort of actual working example that would probably happen as opposed to us as the client saying, yeah, no, as per this email blah, blah, blah, you can’t, we’re not going to pay. It would typically be something as kind of flippant as that, I would say.

Samuel Balden: Yeah, I think you’re right and it happens a lot, doesn’t it? There’s a one line in an email somewhere that says about some defect or other and then you never hear anymore. I think it would depend because what the court has to look at is whether there is a genuine and substantial dispute. So it would be a question of well did that one line in that email amount to a genuine and substantial dispute. So I think what I’d be looking at in that situation you’ve just given is when you threaten that winding up petition, what are they saying to amplify the statement they’d made previously? Because by that point really they ought to be able to give a little bit more detail and flesh it out. If they do that then I think you’d be on fairly dangerous ground if you went ahead with a wine and opposition. If they can’t substantiate and they can’t give any more detail, I think I’d be pushing a bit harder and saying, well that doesn’t really sound like a genuine and substantial dispute, let’s keep the pressure on.

Paul Heming: Interesting. So we’ve got to the point now where wine in a petition we know that is useful where there is no dispute crystallized. I feel like we could talk for ages here, but I’m going to take us off for a little bit of a break now and we’ll come back after that.
So you’re taking me back to my old days here, Sam, of winding up petitions when I was a young whipper snapper of a QS. Here, take me back to a funny place. What I want to talk to you about now, we’ve talked about your framework of three questions. How much is the dispute? Is it disputed or not? And then what stage of the project are we at? That question number three, you’ve now got information about how big the dispute is, whether or not it’s disputed or undisputed. And you then ask what stage of the project are we at? Why?

Samuel Balden: Partly for commercial reasons, partly for legal procedural reasons. So we’ve just talked a lot about winding up petitions. If you are on interim application number one on a two year project, the courts aren’t going to allow you to go off and issue a winding up petition on your first interim application. Because they’ll say, well look, you’ve got however many additional interim cycles to go through. You’ve got a final account, you might think you’ve owed some money now, but actually over the course of the project that that could go swing either way as to who owes who what. So there’s that aspect of it. So we’d be then looking at, okay, well you know, do we need to adjudicate or arbitration, litigation? Do we need to go and try, and try and get them in a room and hash out a deal here? What’s the best strategy? The other one is for commercial reasons. Again using that example, if it’s the first interim application in a two year project, do you want to start the fight now? Because that’s setting a precedent that every single month you may well be having a fight. That may well be the message you want to send. Because you want to say this is how it’s going to be. We’re not messing around. You treat us fairly throughout this project and if not, we go to adjudication every month. There are some projects that proceed like that, but actually the other end of the spectrum you might be on your final interim application, you’re just about to sort the final account out again, do you want to fight now or do you want to thrash it out on the final account? It’s always going to be a commercial conversation with the client. How’s the relationship? Are you going to do work with these people again? Have you got no intention of going into contract with them ever again? You know, are we happy to have the fight now. If we are mid project, how big has the dispute become? Are you 3 million pound apart on a 5 million pound job…?

Paul Heming: Trouble is brewing?

Samuel Balden: Yeah, maybe we want to do something now to kind of try and get it back on track. How bad is your cash flow suffering? Do we need to do this? All of these questions and it’s that balance of the commercial needs and aims of the client. Also with the legal procedural stuff.

Paul Heming: I think you’ve, I mean just through this conversation you have highlighted exactly why and the title of the show is about what does your mate think is the best way for you to recover money in the pub or similar. And what we have highlighted through this conversation is if you’re factor in those three questions as to your thinking about how do I recover this money that I’m owed? There are so many subjective points about your specific project, your specific client that actually impact how you navigate there. And there’s lots of different options, which is the good thing. I think what I was interested particularly in the context of today’s market where it’s getting difficult to get paid, there’s some big companies going bust. You said there about if its application number one, do you really want to be adjudicating? Obviously the answer to that for almost everyone is no, I’m trying to, everyone wants to build a good relationship, wants to do it commercially, get on with a job, get paid for what we should get paid. I guess my question is where we are today, it seems that by the last application a lot of these projects are souring or there is a financial dispute, a payment dispute. I wouldn’t recommend adjudicating on application one. But by the same token, how do you set the tone? What would your advice be for setting the tone so that, because if someone did adjudicate on application one, you would probably think that they were pretty insane, but at the same time you might be minded to give them a wide berth if you were going to pilfer and tamper with their application each month. Do you see what I mean? So what would your, how are you advising your clients to proactively ensure their cash flow is not the one getting tampered.

Samuel Balden: If its application number one and you are already getting signs that there’s going to be a problem, that problem is going to be magnified each interim cycle. So it’s looking at it and going, okay, well what can we do to protect you as best as possible? Make sure every single application that goes in is correct in terms of form substance, all the substantiation you can possibly put into it. Make sure it’s in by the relevant deadline. We need to scrutinize the contract. If you haven’t done it before you signed it, which may well be the case, let’s look at what the contract says, let’s be really good and let’s be absolutely hot on our applications. Don’t put them in late. Give them an excuse for nonpayment. Don’t send them to the wrong email address. When the contract says send it to Dave, don’t send it to John because it’s not valid and so forth. We talked about these sorts of things previously and monitor it really carefully and if two or three applications in things have resolved themselves, fine. If the problem is getting bigger and bigger and bigger, let’s keep talking and let’s decide at what point do we say, right, we need to do a quick adjudication here to bring things back on an even keel.

Paul Heming: Because the difficulty being I’m thinking now of subcontractors and main contractors and the reason why I’m thinking about that is in the context of massive companies going into administration, companies like Henry, right? I think you mentioned them earlier, I can’t remember the exact numbers off the top of my head, but you’re talking about a supply chain debt of I think tens of millions or even hundreds of millions, right? So you’re talking about subbies, just that money evaporating into no man’s land, in the context of you’ve got contractors going bust the market is incredibly difficult right now. How do you protect yourself I guess in the, because there’ll be people sat here listening to this thinking, well that money that I had from Henry, how’s literally just evaporated now? And you talked about the administrators, you’re not going to get that money back. So how do you protect yourself? What’s your advice?

Samuel Balden: It is really difficult. I’d love to be able to sit here and say to everyone, well just get a parent company guarantee or something like that. Well, yeah, good luck getting that. Going into things with your eyes open. Go back to the age old point of please, please, please read the contract before you sign it. Look at what you’re signing up to, make sure your payment terms are something that you’re happy to live with. Look out for conditions, precedent. Things that say unless you get your request for extension of timing on pink paper by this day then it’s not valid and you don’t get any extra time and all of these sorts of things. Just tighten up your contractual processes as much as possible. Keep on top of it. If there’s a problem, don’t sit on it. You know, we have a lot of people that come to us and say, well I haven’t been paid for a lot, we talked about retention before is classic example. Somebody’s been holding our retention for four years. Well why, why have you let it get that far? Why have you not jumped on it, I don’t know, let’s say you had a 12 month defects rectification period. Why at the end of 12 months were we not chasing that? And if the client says, well I was, but you know, every six months I’ll send them an email or something, then they don’t pay me. My advice on that, as soon as you haven’t been paid a sum by the final date for payment, whether that is retention or an interim payment or whatever, don’t sit on it, jump on it. Okay? I know people want to build commercial relationships and protect them and maintain them, but what’s the relationship worth if you’re not being paid? That’s a very one-sided relationship.

Paul Heming: So, it’s almost a distinction. You’re actually making a really unique and interesting distinction there, Sam. Because what you’re saying is, going back to my adjudicate application one, what you’re saying is look, adjudicating application one where you’re disputing whether it’s 25% or 20% of the measured where’s complete or whatever, right? Don’t do that on application one. But if you’ve agreed that you’re going to get paid 20,000 pounds on application one and it’s due on the 30th of October and it’s now the 4th of November, you should, you are well within your right to be pretty spiky about that fact. So there’s first evaluation and agreement of that. But then if they’re send that they’re going to pay you X on they why and they haven’t. Go hard. Is that what you’re saying?

Samuel Balden: Yeah, I would always advocate a kind of staged response. So the final date for payment comes, you’ve not been paid. I would say don’t wait a week and then start writing in capital letters. The day after the final date for payment. Get in touch, nice polite email or a letter or pick up the phone if you want. You know, really sorry, just bring it to your attention. Yesterday was the final date for payment. I noticed you haven’t paid me that sum that was supposed to come in. Can you sort that today please? It can be polite but it just shows them that you are on top of your game, you know when your dates are and you’re not going to just sit back because there will be lots and lots and lots of other people in that supply chain who sit on it and do nothing. So you are already at the top of the pile. Give it a few days. A week maybe. If you haven’t had that payment after your polite chaser, which in reality a lot of times you probably haven’t, then you start increasing the level of seriousness. You know, that’s at the point where you’re saying, right, okay, if you feel it’s got serious, you do your seven day notice to suspend. And I think suspension, if you get it right, is a really, really, really good tactic. But I say that with a massive, massive caveat. You have to get it right. But that goes with a slightly more robust letter saying, well look actually we’re charging interest and we are suspending and et cetera, et cetera. And if you don’t pay within another few days, we’re going to get the lawyers involved. I would have that timeframe from final date to payment to talking to the lawyers fairly short. It’s all well and good to say, yeah, no, but we need to maintain the relationship. But again, I go back to that point of what’s the relationship worth? If you’ve agreed 30 day payment terms but they don’t comply with them and its 60 or 90 just because they decide they want to take longer to pay you. That’s not a good relationship. You know, put that in the contract. If you want 60 day payment terms, put it in the contract and we can all argue about whether or not we’re going to agree to that. But don’t just try and enforce that by not paying in accordance with your own contractor.

Paul Heming: So is kind of your message, I think this would be your message almost in any market situation whatsoever, but is your message, especially in today’s market, we’ve got companies like Henry go and bust and there’s tens of millions in the supply chain just evaporated. Your message is sharpness and focus matters more than ever today.

Samuel Balden: I think it does and as I said, you don’t have to go in all guns blazing as soon as the final date for payment has passed you. You can do it in a staged manner, you can do it politely. But I think chasing immediately, regularly, and in a firm but polite way, I don’t see any issue with that. What you are signaling to the other party is, look, we are not the ones to mess around here. You’ve got all the other people in the supply chain who scratching their heads not knowing what the due date was and haven’t quite got around to chasing you and stuff. Hold onto their money but pay us. Because we know what we’re doing and we will take action if we have to.

Paul Heming: Yeah, I mean I completely agree as how I used to approach a final account meeting was, I’d be the subbie with all of the files, with all of the records, X, Y and Z. I know you’re going to want to take some money off of someone. It won’t be me, it’ll be someone else. And it’s exactly that same mentality, isn’t it? Dripping it through. You talked about…

Samuel Balden: It is. Because I think you talked about when a big main contractor goes bust, well do you want to be the subcontractor that’s waited until that happened because you were being nice and trying to maintain the relationship and not chasing your money? Or do you want to be the one that chased their money early and got it in before the company went bust?

Paul Heming: I think everyone listening knows who they want to be, right? And irrespective we’re talking here very hypothetical, every subjective relationship personally and professionally, it’s really hard to manage. You never know where it’s going to go. I think the important thing to think about is, Henry, they go bust and that money disappears. And that’s something you’ve got to think about. And it’s not just for subcontractors. The main contractors. Main contractors I know will be feeling this with some of their clients as well right now. So it’s a two-way street and it is going to impact everyone. One of the final questions I wanted to ask you, and you talked about all guns blazing there quite often. We talked about it a few weeks ago on the show. You’d go to meetings and it literally would be all guns blazing and quite a lot of emotion. You know, cash, the only reason anyone is in business is for money, right? We all of us want to make money, all of us want to pay our guys, et cetera, et cetera. So it’s so important and it creates emotion. As a, I’m interested to ask you, because we’ve talked about this as a commercial manager a few weeks ago, how to manage those volatile or hostile meetings and we came up with quite an interesting framework of how to go about it. As a lawyer, someone who is involved in disputes contention as you talked about, how do you manage it yourself?

Samuel Balden: It’s about reading personalities, isn’t it? I think a lot of this is, it’s always psychology. What do you need to do to get your message across to the other person? Some people will respond to that hostile approach. You go in and you shout louder than they do and they back down. Other parties need to be persuaded and actually if you shout, they’ll just shout and it just escalates more and more and more. So it’s an art, isn’t it? It’s understanding the people you are trying to communicate with them, what’s the best way to get your message through to them. Lawyer to lawyer, we fire off a lot of letters and emails and stuff because you need to build that paper trail, we’ll pick up the phone or we’ll have face-to-face meetings when it’s helpful and appropriate. But a lot of it, we’re always thinking, what if this goes to adjudication? What if this goes to court? We need that paper trail that we’ve said the right things and that allows us to be keyboard warriors and write how great we are. And our client’s case is fantastic and theirs is rubbish, but it’s about being persuasive. So from lawyer to lawyer, we have to say, well look, here’s the strength of our legal argument and our factual evidence. And I think one of the really useful tools for us as lawyers is to say, well, regardless of who’s right and who’s wrong, because it’s rare that a dispute is black and white. There’s usually a lot of gray, and particularly in construction projects where your evidence, the paper trail that the clients have given to you is often has gaps in it. But it’s saying to the other lawyers, say, look, you and I both know this could go either way in adjudication or in court or arbitration, whatever the procedure is because there are points that are gray rather than black or white. And the costs to the parties of having that argument are going to be massive. So…

Paul Heming: Do we rather…

Samuel Balden: Yeah, rather than both sets of clients throwing all that money into having the fight, why don’t we use that to apply a discount? You know, any compromise involves one party usually paying a bit more than they think they want to and the other party receiving a little bit less than they think they want to. But it gets the deal done without having to go off and end up in the high court arguing for two, three years and spending extortionate amounts of money.

Paul Heming: I think that’s a really, really interesting point as well. And you know, I have been in projects, 50, 60 million pound contracts just for a subcontract element. You’re arguing over 1, 2 million pound variations and you get yourself into a position where you are so convinced that you are 100% correct that yeah, I know that’s those minor little bits that they’ve brought up, but it’s just nonsense. I’m right, they are wrong. I want my million quid when the reality is you bring two external parties into it as lawyers looking at both and saying, look, I land my punch eight times out of 10. Yeah, you’ve got two good points. But quite often then it almost goes back to that point that you said about question number two. Is there a dispute? And quite often people will say to you, no, and you always take that with a pinch of salt, right? Because I’m reflecting on variations. You’d have asked me, is there a dispute? I’d say, yeah, there is, but I’m right. But actually what you’re saying is that you try to look at it as pragmatically as possible. You have less of the emotion that the commercial project team has for obvious reasons. But you still say, look, I win eight times out of 10, but except I’m not going to get my million, I’m going to get a discounted portion of that to save going to that next level of dispute. And I think it’s a mentality almost that at times reflecting myself, I probably didn’t have, but if you’re listening to this and you’re worried about payment and all these different things that we talked about, it probably is like, how do I get myself into a position where I can get some of that money as opposed to every last penny by being totally dogmatic about it.

Samuel Balden: Yeah, I think that’s right. You know, I have this conversation with clients a lot is that we are there to fight as hard as we possibly can and get the right result for them. But it’s also to do that in a way that we’ve got no emotional investment in it. So we can actually sit back and go, well, alright, I appreciate you feel like you are right on all of these points. But actually and I’ll say this, a lot of times I’ll say if I was the judge or the adjudicator or the arbitrator, I would look at what you’ve put in front of me and this is what, this is the decision I would come to. So yeah, you’d win on these eight points but actually on these two, I’m not convinced. So let’s think different adjudicators, different judges wouldn’t necessarily view it the same as me, but someone with a legal training will tend to start to view things in the same way. And I think that’s a helpful process.

Paul Heming: Yeah, no, absolutely. And I think we’ve definitely come to the end of the show and I think there’s a lot of takeaways and I think primarily if there is a dispute, it’s that three question framework that you talked about at the start that it’s helped us in a couple of examples. Just pick and choose which way we would go. And I think most importantly as well, and we’ve touched on it a lot is the sharpness commercially, contractually, legally right now needs to be at the forefront of everyone’s mind and speaking to people like yourself, Sam, is absolutely what people should be doing if they feel that they’re marooned in a complex and complicated spot. Right?

Samuel Balden: Absolutely. Yeah, I think good quality advice early on and it can save you an awful lot of money. You know, I go back to what I say, I think the best time to get advice is before you enter into a project, get some training on how to operate your contracts, get your contracts reviewed before you enter into them. But if you haven’t done that, fair enough. Except a lot of people don’t. If you get the slightest sniff of a dispute, talk to someone early on because actually we do a lot of work where we help clients lay the paper trail without showing our faces. You know, we’ll help them craft letters and emails to draw out the right response from the other side. So we’ve then got that paper trail in the event that the dispute does kick off because we can see it coming.

Paul Heming: 100% and I fully endorse all of that. Sam, I said it last time when we spoke that I feel like we could carry on chatting. I’m sure we probably could and I’m sure I’ll invite you back. Once again, thank you so much for taking the time, mate.

Samuel Balden: Look forward to it. No worries Paul. Appreciate it.

Paul Heming: Thanks mate. And guys, I will see you next week or speak to you next week and don’t forget you have got that free final account template download in the show notes. Catch you next week. Cheers.