EP 141

Understanding the Difference: Liquidated Damages vs. Consequential Damages Explained. (EP 141)



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 the difference between Liquidated Damages and Consequential Damages and how you must negotiate both at the tender stage and throughout the contract's lifecycle. As always with Cian, real-life examples are brought to the table, and we share best practices if you get into similar positions.

Your free OTB download

As promised at the top of the show - I’ve shared a link to the download 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 141 of the Own the Build podcast with me, Paul Heming, I am continuing to give away our downloads, and today I’ve linked an eBook I co-wrote about payment notices. So the context of the eBook is that you are a main contractor working on a JCT contract. You’ve employed a subcontractor on a nine month program, and it comes to month eight, and you fail to issue a payment notice or a pay less certificate on time. And the question is, what do you do in that situation? I put that question to an adjudicator and we discuss it all in the eBook. The link is in the show notes. Feel free to drop me a line, let me know what you think, and drop me a line if you’ve got any questions. Onto today’s show in the studio today, we are joined for the Hat Trick by Cian Brennan, who is managing director at Quantum Contract Solutions, a company giving contractual superpowers to construction companies. Cian was on the show for episode 115 and 129, and if you haven’t listened to them, get back to them. They were absolutely amazing. So good was the feedback that, like I say, Cian is here for his hat trick of own the build shows. Welcome back mate. How’s it going?

Cian Brennan: Very, very good. And also just listening to your free resource that you’re giving. That’s super interesting. I would actually, and I think I will have a read it at myself. Adjudication, adjudicators, all of that stuff is, there can be a complex world.

Paul Heming: Indeed. Yeah. And I was always on the other side of things, right, where you’d see, you’d be the subby and you’d think, huh, they’ve missed a payment notice. Right? So I knew kind of how I would act in that situation. I wouldn’t have been quite that smoke, but I might have been semi smokin. But I was interested to know as a main contractor, what you would do in that circumstance, how best to manage the situation. So yeah, really interesting. And the adjudicator as you’d expect, brought some interesting insight. Before we jump into the show today, Cian, just remind our listeners and inform our new listeners who you are, your experience in construction and what you are doing today.

Cian Brennan: Okay, so considering we’ve been on twice, I’ll go Cliff Notes, very high level. I was at client side my whole career. So, my specialty in ultimately work for large oil and gas companies on construction projects. And then went to a consultancy where it was my job to show them how to save money contractually. And so over time I saw construction companies going out of business ultimately because they didn’t understand how to navigate the insides of these bigger companies, main contractors, general contractors, the owners, whatever. And so we started a business called Quantum Contract Solutions to help subcontractors and contractors, basically people down the contractual chain to manage the insides of these larger companies to get paid, to make sure that they negotiate their risks down in the first instance and in the post-award phase, make sure that they’re contractually compliant. Help them with that exact issue where I might be rubbing my hands together what you said there with they missed their dates, helping them with all of that stuff. Because ultimately what happens in construction is as you go down the contractual chain, the contracts get more and more hostile because some stage PWC EY came into these companies and said, you, strategy wise, you need to push the risk down. And so ultimately what happens is that down the line, you’ve got the worst contract in the whole chain. And more often than not, you don’t have an in-house team of lawyers, contracts, people to be able to negotiate to be able to handle it. But the biggest onus is on you. And so ultimately, if you don’t negotiate or if you don’t know how to play the game, I mean, if you’ve ever played somebody in a board game and they don’t know how to play, you wipe them. Right? So if you don’t know how to play, oftentimes you lose money, you go out of business. And that’s the vision for Quantum is to help those contractors that industry come from its knees onto its feast to be able to push back, to stop being bullied contractually and ultimately stay in business over the long term.

Paul Heming: And a fantastic job you are doing. We’ve talked already, like I said, go back and listen to episode 115 and 129. Because you can see from the war stories and the things we talk about in those shows, just how much knowledge you’ve got and just how you are allowing these contractors to get up onto their feet, as you say. One thing that you mentioned there, which I’ve never heard before, so interested just to ask you, is that true about PWC, Deloitte, Ernst and Young, going into these bigger companies and talking about if you want to be more successful, push the risk down the chain?

Cian Brennan: A hundred percent. Yeah, a hundred percent. And it mightn’t be a PWC, it might be a contracts version of that company. I won’t mention names because it would’ve been my old company. But, absolutely, that is the case. And even if you just look at the market right now, right? So someone asked me previously, what would you do if you had a magic wand? And my magic wand to get rid of most of the issues was to have standard contracts, however, for them to be mandatory that you have to use the standard contracts. But you can see on everything, if you have a standard contract, they’re all amended, they’re all amended to suit the person up the chain. And there’s a reason for that. And candidly, if you were in their position, you would do the same thing.

Paul Heming: That’s really interesting. So you, what you’re saying is your magic wand would be that every single construction contract is standard form unamended.

Cian Brennan: You have to use them, right? And so I mean, that doesn’t benefit the owner and it doesn’t benefit the main contractor, but it’s fair the whole way through. It is fair, they’re all fair, but it’s not to their benefit. So do I ever think that’s actually going to happen? I mean, money talks at the end of the day, so probably not.

Paul Heming: Yeah, no, but I get asked all the time, would you sign a JCT standard contract? I say, yeah, don’t worry about it, just sign it. But there’s still even hesitation around that. I think it comes from the fact that not everyone understands them. There’s so many different standard forms and the fact that they’re amended and obliterated 95 times out of a hundred, right? So there’s all of those things, but I think that is a really simple magic wand, to be honest with you. And I always say to everyone, yeah, if you get a standard form, unamended, sign it. One thing that I wanted to talk to you about today, and perhaps this is a neat segue into it, Cian, is you wanted to talk about the word respect in construction. And I think I’m putting words in your mouth here, that would also be quite a good magic wand to wave in construction if there was an elevated level of respect between all parties. But why did you want to talk about the word respect?

Cian Brennan: It’s so important because people want, most subcontractors or people down the chain want to appear easy to deal with. And by doing that, you end up getting steamrolled, people take advantage of you, left, right, and center. And so in an effort to be great to deal with, these guys are not contractual. What ends up happening is you get bullied, you get pushed around because they think, so for example, let’s just say you wanted to get a variation or an EOT approved. An EOT approved, okay, you’ve been delayed and they routinely take forever to do it, to approve it. And you just let it happen. You let it happen. You letting it happen doesn’t make them think that you’re great. It basically goes, oh, we’ll do this every time now because it’s, it’s in their best interest. It’s like giving them an AMEX platinum credit card where the longer that they can push it out, the more cash flow they have. They are stealing your cash flow. You are financing it for them. If you take the other side of it and you’re like, hey why aren’t you approving this? You’re supposed to be approving it in this amount of time, and you are a bit of a squeaky wheel done in a nice way. They respect you. In that, the next time it happens, they’re like, oh, I better pay these guys because, or I better approve this quickly because they’re going to be on my case. And so people have the impression that if I do that they’re, they’re going to think I’m di difficult to deal with. But the reality is they actually respect you for it. And so looking to be respected is important. So that’s one thing. The other part of the industry that I really hate is sometimes it’s not so much on their side as a company, they don’t respect you. It might just be their PM and he’ll come out and he’ll say, wild, excuse my friends wild to you about, I’ll get you cut off the job and I’ll move you off the job. That sort of stuff is the stuff that I really don’t like. They kind of make a subcontractor feel like you’re a diamond dozen, we can replace you at a moment’s notice. And the thing is, they can’t, right? Contractually, they can’t. And also from a market point of view, commercially, they can’t do it either. And so when people are speaking to you like that, it’s like being bullied in the playground, right? If you let that happen, you don’t stand up for yourself. Obviously, we don’t want to get angry and there’s loads of different things, we talk about or tactics around that. But if you don’t go head to head at them, they won’t respect you. But if you do on this project, they will go, okay, these guys are contractually commercially savvy, they’re good, they’re like, and then on the next project they’re like, look, those guys knew what they were doing and we need someone who knows what they’re doing. That’s respect. And that’s the difference between being easy to deal with and being respected.

Paul Heming: Why is it that, I mean, you work with a lot of subcontractors. I am a former subcontractor, so maybe I should be able to answer this question, but why is it you think there is something inside which makes contractors think I’d like to feel that I am considered easy to deal with? What is it that makes them feel like that?

Cian Brennan: Well, it’s probably because they want more work, right? They want to be like thought of as you know, oh, if I’m easy to deal with, they’re going to want to deal with me again in the future. And so it’s an effort to maintain the relationship. We can talk about relationships in a bit of, it’s about having a good relationship with these guys, working things out. And then over time we have this relationship where they give us more and more work. That’s what they want.

Paul Heming: But what you’re saying –

Cian Brennan: Was that the question?

Paul Heming: Yeah, that is absolutely the question. That’s obviously what they want. But what is it that, so if I’m not going to be that I’m going to be this more abrasive or harder person to work with, am I going to struggle to get work in the future?

Cian Brennan: No, absolutely not. Because ultimately, if you’re making a better margin and you have better cash flow, right? That’s all we’re talking about here. So really when we’re talking about these contracts saying we want to get your variations changers, EO2s approved quickly because when the thing happens to when you get paid really affects your cash flow. And so if you’re a type of company that has good cash flow, has good margins, what’s the outcome of that? Over a longer period of time, you’re producing a better service, you’re hiring better people and ultimately your reputation increases in the market over time. If the opposite occurs and you’re getting hit and your cash flow’s terrible, you can’t do a good job because you have no cash flow, you can’t pay people, you can’t buy new equipment. It’s difficult. Your margin’s not high enough. Sometimes, I’ve heard margins be as low as 10% or even lower, right? But on some jobs, retention is almost that. And so you don’t get your retention back until potentially 12 months down the line. That’s not exactly right, but like half of your attention. So you’re not getting any profit for 12 months. That’s not good.

Paul Heming: Yeah. 100%. So that all makes sense. And actually I wanted to talk to you about hostility in the second half of the show, but given that example that you kind of just talked about, and I think everyone listening will resonate with them. You know, what that description of a PM being particularly aggressive or whatever, right? We’ve talked about it on the show before, I guess it’s quite an interesting point to dwell on. And we will all have been to meetings where you’re going into them and you think this is going to be brutal. There are people in this meeting and there are emotions and numbers in this meeting, which mean, I know this is going to be brutal. I’m not necessarily particularly looking forward to it. Some people may be looking forward to it. I wanted to ask you, because you’ve got tactics and a framework for hostility and hostile meetings. How do you prepare for a meeting that I’ve just described, which is going to be pretty savage.

Cian Brennan: So some people go into it like it’s a battle, right? And it’s, I’m going to battle over this thing. And it’s a fight basically. That’s not what we want to do. Okay?

Paul Heming: Why?

Cian Brennan: What we want to do? Because you would get you nowhere. What typically happens in those sort of discussions is we’ll come into a meeting, right? And let’s just say just 500K on the line, 500K is on the line. What invariably happens, we’ll spend, we have an hour meeting, we’ll spend 45 minutes arguing over a tiny bit of that claim for the whole thing, right? And that’s what happens. And it’s just over and back. A no, I don’t disagree, whatever. And so that doesn’t work. You don’t get to where you want to go. All that happens is it delays it again, you have to have another meeting and it goes on and on. So given that we’re dealing with a PM who is that way, right? What we need to do is two things. One is he needs to be talked out. You need to let him talk, make him feel that you have heard him and still give him the power to make a decision. And we’re going to talk about how we can use those things to your benefit, right? So the strategy that we’d like to use is, firstly, you want to go in and you want him to talk, him or her to talk, you go, right? Can you just give us your point of view on this? Please just go everything. And as he’s going through everything, there is going to be absolutely tons of stuff that you disagree with. And that’s okay. Don’t interrupt him at all.

Paul Heming: Remain silent.

Cian Brennan: Remain silent, right? And not only that – And so let him talk and as he’s talking, take notes as what he’s saying. When he’s finished speaking, repeat back. So what you’re saying is X, Y, and Z, right? So now he’s in a position where you’ve listened to him, he feels heard, he’s talked. The reason we don’t want to interrupt him is cause when it’s your turn to talking, your turn to do the talking, we want to be able to say, sorry, I let you speak. Would you give me the courtesy of letting me speak? Okay? Because we want to cut him off. We don’t want him nitpicking little things that you say which ends up in that 45 minute conversation about a tiny little thing that doesn’t actually matter. Okay? That’s what we want to avoid. So let him talk. Then we follow what’s called the GROW model, right? So GROW stands for goal, reality options and way forward. Okay? So the first thing is the goal. You say, Hey look, the goal for me is whatever the goal is, the goal for me is to come at this meeting with a resolution where we’re all on good working terms and that’s what I want do, okay? Or is the reality, that’s the bones of your argument. Okay? So here’s the reality for us. Blah, blah. Fact, fact, no emotion, fact. Okay? You give them all the facts from your point of view, then we go to O, which is options. And then we give them three options. Okay? There’s three options typically will be right option one, right? We can all fall out over this and we can go to adjudication or we can go to court and it can just get blown messy, right? Bad option. We give ’em an option. Whatever’s reasonable to you, right? We want to keep this high level, we’re talking about that 500 grand. You’re probably not going to get all of your 500 grand back. And then you say option two, we come to an agreement, look, we’re happy to do this, put this amount of take this bit of a trim or a haircut or whatever it is. And then you give a third option, whatever it happens to be. And then you ask him, w for way forward, how would you like to proceed? What do you want to do?

Paul Heming: What do you want to do? I absolutely love that. You know, I’ve never heard it framed as a grow strategy or framework before, but both the G and the O are things that I try and take into almost every meeting, even internal meetings, right? Like, what am I doing in this meeting? What is the a actual point of me even turning up here so that I know that there’s something I’m trying to get out of it? Otherwise, if there is no point in me being there, you shouldn’t be in it, right? But then also the options thing, right? So many things, and it doesn’t even apply necessarily just to final account commercial negotiations in construction conduct all through your business, right? There’s so many different inflection points or difficult points. We’re having these difficult conversations. And if you can say, look, we’ve got option one, two, or three, what do you want? You are creating like a visual view on what the end goal could be. You’re creating options and you’re giving autonomy almost to whoever it is in the room to be able to get to that decision. So that makes total sense. And it’s funny you asked me before we started recording about war stories from my working life, and as you were talking there kind of springs to mind, right? Where we were working on a pretty significant project in Central London. We were Kurt and warning contractor. I got brought into the job about 85% of the way through it. And the project teams genuinely hated one another. Like they just couldn’t get in a room with one another. And I was brought in as to try and just get this job to a point where, look, calm down, we’ll agree. And I did, I went to one. They were the kind of people, this contractor who would never meet you. And if they would meet you, they would meet you late on a Thursday or late on a Friday. Like classic, we will make you as miserable as possible. And we went to a project. And the other thing about this QS’s on this job just to wind you up, you’d go to their office and he wouldn’t be wearing any shoes. He’d turn up in his, it was like this weird, it’s the weirdest. I was just playing mine. Like just such an odd bloat. And anyway, I remember being in this meeting, it was one of those meetings which I’m preparing for, and you think, God, it’s going to be absolutely disgusting and savage in there. And we didn’t follow a grow strategy or a grow framework, quite the opposite. My PM kind of went in there and he was an emotional Italian. And if you’d have him and the QS’s who had been on this job through thick and thin for three or four years, and neither of them would listen to the other one, they’d be talking for two or three minutes and they’d be interjecting, cutting across each other, blah-blah. And it literally ended probably at seven 30 at night on either a Thursday or Friday. At the time, I was in my twenties in London. Well, I had much better things to do and it literally ended up with us breaking up the PM and the QS’s from literally scrapping it out. And that is the complete opposite of what you have just described as a sane and rational way to deal with it.

Cian Brennan: That is how to do it wrong, right?

Paul Heming: Yeah.

Cian Brennan: That is how to do it wrong.

Paul Heming: Wear shoes for starters.

Cian Brennan: Yeah. Do you know the Jordan Belfort, the Wolf of Wall Street?

Paul Heming: Yeah.

Cian Brennan: He’s got a book called The Way of the Wolf, and he talks about, you always want to be like, he’s talking about sales. And this is not unlike a sales meeting. You’re trying to influence the outcome ultimately. And it’s about being the reasonable man. And if you can be the reasonable man in these negotiations, it’s going to be so much easier for you. You’re the reasonable guy. I’ve listened to you, come on, don’t interrupt me. Here’s some reasonable options. Come on, let’s be reasonable. Let’s that sort of person does a lot better than, let’s just take it outside and have a fight and whoever wins gets paid.

Paul Heming: Yeah, indeed. And definitely not on a Friday night. Come on. We’ve got better places to be. So that, I mean, that’s as all as always, Cian. When we’re chatting, there are more than golden nuggets. There are golden rocks and stones everywhere. It’s been great talking during the first half about that. Let’s take a quick break and we’ll come back in the second half and talk about liquidated damages.
Oh, you’ve been taking me back to hostile places, kid. I’m not sure if I can remove the image of that. I’ve just put in my head of that QS’s shoeless picking a fight with my ex PM. But we’ve gone back there. I’m going to have to deal with it. What we wanted to focus on, and like the heart of this show really is the difference between liquidated damages and consequential damages. Now, two different things with different implications and different meanings, and there’s many things that we could talk about off the back of this. But firstly, could you just explain what the difference is between liquidated damages and consequential damages?

Cian Brennan: So firstly, damages. Let’s talk about damages. When we talk about damages, we’re putting the person who’s been damaged back into the position that they would’ve been in if they haven’t engaged you. That’s the purpose of damages. So back in the day before liquidated damages existed, every time you’re on a construction project and you delayed the client, as a company would have to take you to court to get their money back. And that was expensive for everybody, right? Because you are in the wrong, you still have to go to court, you have to pay for lawyers, they have to pay for lawyers, it’s expensive. So they came up with this concept of liquidated damages, which is a pre-agreed amount of what it would cost if you delayed them. That’s what the term liquidated damages means.

Paul Heming: And that would be like, so let’s say it’s a supermarket. The supermarket generates a thousand pounds of profit a day. The loss, if it wasn’t open for a day would be a thousand pounds or something like that, right?

Cian Brennan: No, that’s not right. Sorry to contract it. Okay? It is the cost of the construction.

Paul Heming: Okay.

Cian Brennan: So you not being able to complete the work and let me explain, let me explain. So imagine you’ve been asked to build a hotel, right? That’s what you do. You’re asked to build a hotel. This is a very fancy hotel that has an umbrella over the whole top of the hotel, right? Cause it doesn’t want to get wet for whatever reason. So you’re engaged to build this building. As part of it, you are late, okay? You being late now in the construction only is going to cost your client because other contractors are late. They’re going to have to get paid standby time. All the other stuff is being delayed nonstop. So the cost of that delay to the construction project is liquidated damages. You have to reimburse the client because you’re late in the construction, it’s going to cost them more money. So that’s the pre-agreed damages that it’s going to cost them. That’s the first thing. The second is consequential damages. Consequential damages is the client not being able to rent out the hotel rooms because you’re late. That’s their loss of profits. So consequential damages is a loss of profit, that’s consequential damages. There’s one more type of thing. So the umbrella over the top of all of that is your limitation of liability. Now, if you can cap your limitation of liability, you cap everything underneath it, which helps, depends on that definition of the limitation of liability. In your contract, if it’s capped at a contract value or it’s unlimited, that’s very important. So what you’re trying to do is you’re trying to minimize your liquidated damages. You want to cap them at a certain amount of the contract value. So ideally you want to cap it at five to 10% of the contract value, the consequence of damages you never want to agree to, full stop, because the size of the company that you’re dealing with, their loss of profit might be the size of your company. And then the overall blanket, which is the umbrella over the top, is your limitation of liability. And you want to cap that at potentially the contract value or half of the contract value. So you cap all of the liability. Now, sometimes there’s a carve out to say the consequence of damages is not included in your limitation liability, but that’s the general concept of the three different items and how they link. Does that make sense?

Paul Heming: Yeah, no, that makes sense. I mean, I’m wondering whether there’s a slight difference between the technicalities or the legalese, if that’s the right way of putting it, between where you are based in Australia and where I’m based in the UK, in that what we tend to have is liquidated and ascertained damages, which is kind of a combination of the liquidated and consequential damages. And then we have loss in expense, which would be the consequence of, so the LEDs would be my example, Tesco’s, you’re building that and it’s late by a day and it’s a thousand pounds every day or whatever, right? And then you’d have the loss in expense, which would be the cost of the issues and impact through the construction. So I don’t know whether that’s just a little bit of nuance between the two, but I think we’re talking very much the same language anyway. And what I think is really interesting is what you said about you never want to agree to that anyway, or you need to agree a cap or that limitation. I guess the question is, what is your advice to your clients, your many clients with regards to damages first and most importantly for me, at tender stage, you receive an inquiry which says, this is the job, it’s a million quid, damages are X. What’s your response to that?

Cian Brennan: There’s three of those things that I said, right? So the terminology is potentially different. But it’s the same thing in the US or whatever, right? So let’s just, I’ll try and distill it into simpler terms. And we know from our benchmarks from have doing this all around the world, what is reasonable is about 1%, 1% per day. That’s a reasonable amount for liquidated damage. That’s for delaying them on a project that’s reasonable.

Paul Heming: 1% of your contract value?

Cian Brennan: 1% of your contract value per day. That’s reasonable, right? And less is better, obviously, of course. And what we want to do is once we see it, you’re going to have an opportunity to prepare a departure list against what you disagree with. So we want to look at those three things. Liquid data damages, consequential damages, which is lot, okay? Or liquid data damages, loss of profit and limitation of liability. They’re your three key things. We want to cap the liquidated damages, which is the cost to reimburse the clients for them being late under for them being late in construction. We want to cap that at 10% the contract value and it to be a minimum of 1% per day. That’s what we know is reasonable, is you can go back to the client and we go to the industry averages 1% per day capped to 10%. If it’s not capped, you really want to cap it because if the contract blows out by a long way, you don’t want to be getting hit with liquidated damages forever, right? You’ll quick way to go out of business. So that’s the first one. The loss of profit, their loss of profit, you just don’t want to take that full stop. You say it is a com commercial principle of ours that we don’t agree to loss or profit. And you can blame your insurance company, you can blame whoever it does, it doesn’t matter. But again, it’s not reasonable for them to do that to you anyway. And so they’ll be –

Paul Heming: Well, everyone else to sign to. You’re not going to win the job.

Cian Brennan: Yeah. It’s a pretty reasonable retort. And we go, well, we don’t, it’s our commissioner principle, not do we never do. And ultimately they might come back to you with carve outs to say, okay, as long as it’s not willful misconduct, as long as it’s not negligent or whatever, and there’re things that you could potentially agree to. Okay?

Paul Heming: So, it is your point of principle to say no.

Cian Brennan: Yep.

Paul Heming: And then they can either go somewhere else, or if they’re not minded to do that because they want to work with you, then they would say, okay, well look like we’ll carve out a slightly more defined way. And to you that then is a dramatically reduced risk.

Cian Brennan: Yep. And then the other one is you’re limiting your liability. And so just so you know, if your contract is silent on limitation of liability, what it means is it means it’s unlimited. So we want to get something in Contract to limit the liability. That’s an important thing. And as you’re saying this, I know it seems reasonably complicated, but it actually is very simple. Like we, our statistics over having almost done 4,000 of these contract reviews in the last five years is 82% of what we put forward gets agreed. And I’m not saying that to like bolster like how good we are, although we’re pretty good, right? But I’m saying it so you realize that you can negotiate, they’re expecting you to negotiate. That’s the game they’re giving you their contract expecting you to negotiate. They have backup clauses for everything.

Paul Heming: It goes back to that first principle, right? Of what you said of they had all of these companies come and say, if you want to manage, if you want to be successful, you’ve got to pass the risk down. Here’s tier one, it’s the perfect contract, it’s the worst one for the contractor below you. Here’s tier two. If you can’t agree that then agree this, and here’s tier three. If you can’t agree that then agree this. Right? That’s exactly what you’re saying.

Cian Brennan: That’s it. Exactly. They have backup things for everyone. And so by not playing the game, you’re putting yourself at a severe disadvantage.

Paul Heming: And you’ve just kind of proven it right by we, I gave you, I said, you have to sign it and you said, no, we don’t sign it. And then you said instantly, okay, well we’ll carve it out and there’s, there’s this option and there’s this option. Because you’ve seen it so many times yourself that you know what they’re going to come back with and come back with. So that’s why you, I think that in part here is at times the problem for some of the contractors, they’ve never gone through the process or they’ve gone through the process so sporadically or in such an ad hoc way once every six months or whatever, it doesn’t ingrain. Whereas you’ve just said, we’ve done 4,000 of these, we’ve done ’em all day every day, and therefore you must be, you must almost roll your eyes when you see some of the, yeah, yeah. Okay, so I’m going to say this and they’re going to give me that, then I’m going to say this and then they’re going to give me that. And that is the culture and the process. You’ve just got to be aware of it, right?

Cian Brennan: A hundred percent. I mean, literally half an hour before we jumped on this podcast, I was chatting to a client, he’s a scaffolding company and they want him to sign up to a defects liability period, and most people would then sign up to it and then what ends up happening, he’s not getting his retention or security back for 12 months. For no reason whatsoever. There’s nothing, there’s no defects. He takes all his scaffolding offsite when he is finished. It’s an imaginary scaffold that something can go wrong in afterwards.

Paul Heming: I have to admit kid, I have to admit that at the very start of my career, it was the second project I ever managed. I was procuring a scaffold package and in the inquiry I put in there retention and DLP and I got told I was an absolute Muppet and I never did it again.

Cian Brennan: Fair enough, fair enough. Good way to learn, good way to learn.

Paul Heming: Indeed. And so one of the things that I think it happens quite a lot I have seen is that the employer’s contract will have a certain portion of damages or a certain level of damages, right? Which whether limits on or not by the main contractor, it is what it is. One of the things that you always see, or not always, but I see huge amounts of time, is that whatever that number is in the main contracts just gets lifted and shifted 100% into the subcontract even though the subcontract is 5% of the overall, or 10 or whatever percent of the overall package. That’s something I saw a huge amount as always a talking point. We had our points of reference around that. Do you see that? I guess you do and if you do, how do you react to that? What’s your framework for response?

Cian Brennan: So, LDS are a genuine pre-estimate of the costs, right? So what you’ve described is not a genuine pre-estimate, they’ve just lifted it from domain contract and given it to you. So the figure that they’re giving you isn’t a genuine pre-estimate. It’s not how much the damages that they’ll be hit with. I’ll give you an interesting example actually. And this one is tricky from all sides, but you can see the argument, right? So this particular company was producing a concrete mattress, an underwater, like it’s on the sea basically, contract mattress, I think it was for a reef, like a manmade reef sort of thing. And so the client’s LDs were based on, if you’re late, we’re renting this vessel, right? Which costs us 20 grand a day to rent a vessel and if you are late then that’s going to be our cost. Essentially, that’s it. And so what ended up happening in the contract was they were late in producing that con in that mattress. However, what was also late was the vessel. And so they actually hadn’t been impacted with the damages that they said they would be impacted with, if that makes sense. So they didn’t incur those damages. So there was an argument over they’re saying, well you agreed to this amount and they’re saying, well you didn’t actually get hit with any damages. That was an interesting way to look at it.

Paul Heming: It’s stupid though, isn’t it? Because that’s with here in UK with LDs in a similar example that 20 grand you couldn’t charge for it unless you had incurred it, right? That’s like a fact of law, however, the amount of times where you’d receive it. So yeah, there you go. And you’d say, prove that you’ve incurred that. And they’re like, well we can’t yet, but we are being threatened with it. And then it’s just sat there on your final account as a number deducting against your, and you kind of are put in this point position where you’re like, well I want to get out this job cause it’s been hell or whatever. I don’t want to stick around for LDs, LEDs, whatever you want to call them to eventually land, but they may never land and if they never land they can never be taken away. But the fact that they are there in your contract creates an environment where your final account can be tampered with. And it’s a point of principle, it’s like something that can be used. And so often at the negotiation stage for me, you would hear, yeah, but you can only take LEDs if we actually suffer them and you know, we’d have to prove that to you. So it’s standard. Just leave it in, it’s absolutely fine. It’s very unlikely to happen. And then when you get to that point, it’s like, yeah, well we haven’t necessarily incurred ’em yet, but they’re on our final account and it’s a thing that you are being hammered for, so it’s so important, isn’t it?

Cian Brennan: Yeah. And if I was to summarize contract management 101, to make it as simple as possible is that your final account, your last couple of invoices, payment applications are where it all goes down, everything happens. What typically happens, you’ll see this as well, 9 times out of 10, you think it’s all going well and then your final account is like, well actually you’re late 20 days, right? And you’re like, no, I’m not, you’re late 20 so we’re going to hit you 20 days’ worth of liquidate damages. And then you’re like, no, and then you have an agreement and then you end up coming out meeting them in the middle and coming out with half of the money that you expected to get. So that’s what happens most of the time. And so all you have to do very simply is prepare a body of evidence contractually with letters and with notices so that when that does happen, you’re like, oh, well here’s my body of evidence.

Paul Heming: What about this and this?

Cian Brennan: What about this? That’s simple, right? And then typically when you are on top of your paperwork through the contract, that doesn’t happen because they look at you and go, ah, these guys are on top of it, they know what they’re doing, let’s go up to someone else.

Paul Heming: Well, we look at Jerry over there, we can go after those guys who haven’t been doing their notices.

Cian Brennan: Exactly.

Paul Heming: Yeah, 100%. Okay. So I mean I think there’s some significant takeaways there with regards to limitation of liability, thinking about it at tender stage, thinking about it throughout the lifecycle of the contract there. We’ve come to the end of the show, Cian, as always, the hat trick has delivered. It’s been another amazing show covered quite a lot. You’ve taken me back to some dark places, which I didn’t want to go but here we’re, I did it.

Cian Brennan: Smelly, dark, smelly places by the sounds of it.

Paul Heming: Yes indeed. But I think, and I’m sure, because you know, just reflecting on that I’ve taken away that growth framework myself that I’m going to think about and potentially utilize in meetings moving forward as well. Thank you for coming on the show. I’ll leave all of your details in the show notes as always. And I guess I’ll speak to you soon, mate.

Cian Brennan: You too. Chat again.

Late Notice to Commence

You’re a contractor working on a JCT Contract, latest edition, amended with time-bars on notice gi...

Download now

More Episodes