Subcontractor, how to claim for delay in start-up of site works?

In this article, we will look at some do’s and don’ts when making a claim for delay on site works: How to start? What should you avoid? What should you certainly not forget?  

Introduction

Back in the early days of my career, I was quite impressed by the following situation: I was working for the Main Contractor on the construction of a big shopping center & office tower construction project.

We had a waterproofing Subcontractor that was, in fact, more a supplier. Because of the size of this subcontract, he had accepted – for the first time! – to take a much wider responsibility, doing also the installation works for his supplies. As Main Contractor, we were struggling to get the lowest basement floor dry (close to a river), probably due to an underdimensioned dewatering system.

The work conditions for the Subcontractor were very poor: his site works could only start later than foreseen, he had to work in quite wet conditions etc. So, he made a claim for delay in site works.

Our Project Director was furious:

Why would a small Subcontractor claim so “easily” for site delay from the Main Contractor?

He was in for revenge! And, soon after, he got his “sweet” opportunity. Our Sub-contractor got out of stock on his waterproofing material… putting part of the Main Contractor’s staff in standby mode and delaying the whole project. Not the best start to his Subcontractor career?

So, what would have been the best way for this Subcontractor to handle a claim for delay of its site works? Let’s analyse this step-by-step:

1. Negotiate a balanced Subcontract

The starting point of a healthy contractual relationship is a balanced contract. This is especially true between a powerful – but at the same time dependent – Main Contractor and a much smaller Subcontractor. The latter can cause much more harm than you would imagine from its stake in the project.

What do you need for a balanced subcontract?

• Have a clear planning with interface milestones. You need to be able to identify, without ambiguity, when certain areas of the site must become available for the Subcontractor to work.
• Be entitled to EOT (extension of time). And, have clear rules for what happens if a party doesn’t timely fulfill its obligations. This inclues suspension rights. Far too often, Main Contractors try to write subcontract agreements from their point of view only. Omitting any rights for the Subcontractor is not wise. Especially, if the worst comes to the worst, dispute resolution.
• Have early warning provisions and other reasonable contract language that some lawyers try to omit. A duty to mitigate for both parties, for example.

When a Subcontractor is offering the best technical and economical solution to the Main Contractor, this should bring the right and the confidence to negotiate. If the Subcontractor doesn’t have the right capabilities in-house to do so, it should invest a bit in a safer future and engage advisers.

2. Follow site progress carefully and… communicate.

The Subcontractor should take an interest in the progress of site works (and potential delay), even before arriving to site. A situation, like in the example case, can be anticipated when the interface milestones approach.

By efficient and honest communication between Main and Sub-contractor, standing-by of Subcontractor’s personnel, looking at a desperate Main Contractor trying to get the site dry, can be easily avoided. A lot of these cases are lack of anticipation and parties “sticking their heads in the sand like an ostrich”.

3. Mitigate the consequences of a delay in start-up of site works and… communicate.

When the Subcontractor is informed (or becomes aware) that his site works will be delayed, rather than putting his “claim machine” in action, he should think about all the things he can do to mitigate the consequences of the delay:

• Not all activities are on the critical path. Some delay in site works can be absorbed by free float, therefor not delaying the overall project completion.
• Not all delays trigger stand-by costs.

Anticipation and good-will can do miracles. The Subcontractor should communicate about all the mitigation actions it is putting in place.

Avoid being supported by “claim hungry” advisers (internal or external).

4. Claim for delay in site works if it cannot be avoided and … communicate.

When true efforts have been done as described in the previous steps, anyone will understand that the Subcontractor may suffer from the situation and may have a good basis for a claim. Anyone, including the Main Contractor, the Engineer and … the Dispute (Avoidance and) Adjudication Board and/or the arbitration tribunal.

Conclusion

Anticipation is the first ingredient for a healthy relationship between a Subcontractor and the Main Contractor:

• a balanced contract,
• clear milestones,
• good communication on progress etc.

The second ingredient is true and honest mitigation of the consequences of the other party’s shortcomings (often leading to a claim for delay in site works).

Communicate, communicate, communicate… Do this on

• the status,
• the mitigation actions and t
• he consequences that cannot be avoided.

Only thereafter, a claim can be formulated in a reasonable and productive way.

By acting as described above, I am pretty sure that the Subcontractor serving as an example in this post would have been in a better situation. When the going gets tough… the smart get going.

Read other posts about claims and negotiation by clicking here.

About AfiTaC

AfiTaC.com is the blog on commercial and contractual subjects for the Project Businesses (Construction, Infrastructure, Oil & Gas, Power & Renewable, Water Supply & Sanitation, etc). Its objective is to stimulate reflection, learning, convergence to balanced contracts and positive dispute resolution. You can subscribe to our newsletter by writing to “newsletter@afitac.com”. You can also connect to our LinkedIn page. Engagement with the readers is what keeps us going. So, don’t hesitate to exchange with us by commenting here below, liking our publication on LinkedIn and writing to us “info@afitac.com”.