Who Should Carry the Risk? The Subcontract Debate Commercial Directors Must Have (EP 265)

Welcome to the Show: Ray Mellor-Pike's Journey You're listening to Own the Build the podcast redefining what it means to lead commercially in construction. Each week, Paul Hemming speaks with the thinkers and doers driving change across quantity surveying. Speaker 2 Procurement and commercial leadership insight, experience and ideas all to help you lead smarter and build stronger. Speaker 1 Hello, and welcome to episode 265 of the Own the Bill podcast with me, Paul Hemming. Hope everyone's doing well. If you go to the show notes, there's three ebooks there for you, mastering your career as a QSAI and the impact of that as AQS and mastering construction procurement. All free, all there waiting for you to be downloaded. I wrote them. Come on, you can download them. They're all free. You'll enjoy them in the studio. Today we have Ray Mellor Pike, Managing Director at RMP Consulting, a company that provide contractors with commercial and contractual support. And knowing Ray, as I do, much, much more so. Ray is also the prestigious holder of Don't Tell Anyone This, but perhaps my all time favorite episode of Earn the Build, which this is funny, I've only just noticed is episode 165. Exactly 100 episodes ago, Ray came on and we talked about final account means negotiation psychology. And honestly, I love that episode. So if you haven't listened to that, if you're new, just, you know, jump back 100 episodes. Listen to that Ray, I'm rattling on. I'm doing what I always do. Welcome back to own the build. How are you mate? Speaker 2 I'm very well. Thanks, Paul. It's good to be back. Thank goodness me. I can't believe the fourth time I own the builds. I asked you when we were talking about this a particular episode, do I get some sort of own the build platinum record or something I can mount to my wall, You know, when someone becomes like there's. Speaker 1 Got to be. Yeah. There's got to be something, doesn't there? Million downloads. I mean, you know, maybe it won't be something physical, right? But I did just tell you how I honestly felt about it. Might be my favorite episode of the 264 that have gone before, mate. So is that enough? Can I get off the hook? Are you happy with that? Speaker 2 Yeah, that feels quite good. Anytime I feel like I need to revisit the record on the wall that doesn't exist, I'll just fire at this podcast. Speaker 1 That little 20s? I'll tell you what. I'll cut up that snippet for you mate. How about that? Speaker 2 That would be that would be preferable. Thank you. Speaker 1 Excellent. So just 60 seconds, obviously, fourth time on the show. Some people will know who you are. Just tell us about your career real quick, and then let's get into the topic of today's. Navigating Construction Contract Reviews and Risk Show, yeah, sure. So it's a quick whistle stop tour. I've kind of touched the main 4 parts of the industry that as a surveyor you tend to exist within, which is the PQS part of the industry. Then after my PQS, I'll be a brief career as a PQS, 3 1/2 years thereabouts I went yeah, so enough to know what's going on. Went into residential after that and then I spent the the mainstay of my career main contracting. Did a bit of subcontracting for a year as a managing QS for Facade contractor. Now you love for Todd's. Speaker 1 Yeah, I was a managing QS facade contractor. I feel your, but that's what we get on. Speaker 2 I know it's amazing, like one mind. And so, yeah, I, I having been in each of the parts of the industry, started to acquire a different understanding of each, uh, part I, you know, as a, as a PQSI initially thought, oh, contracting's like this. And I sort of looked at all contractors, you know, the corner of my eye thinking that they're trying to, you know, RIP, RIP me off, uh, at every turn. And then I became the main contractors QS and realize actually the pressures I was under there. And then once I sort of understood what it looked like from the subcontracting side of the coin as well, I appreciated the pressures that they were under. And actually what it allowed me to do is gain just a more holistic view the industry that everyone's under a lot of pressure and trying to all commercially deliver for their respective corner of it. Speaker 1 100% and and then today what you're doing today is kind of well, you tell me. Speaker 2 Yeah. So where I'm at now is I'm actually helping all of those respective faculties. So I've worked for some PQ, s s, I've worked for some main contractors, done a bit of resi and also a bit of subcontracting in my 3 and a bit years, you know, with my own business. And in terms of actually where I'm at now, most of what I'm doing typically tends to be contract review work and get involved with a bit of dispute, bit of mediation, some contracts training. So I touched various points within the industry even now, which is quite nice really. It's almost a bit representative of where my career has gone, having been a Jack of all trades and a master of none, that that is a little bit what I'm like now, Although I I do find myself now gravitating towards a lot of contract related work which we're going to talk about today. The Critical First Check: Limiting Your Business Risk Yeah. I mean, you've, you've been on the show 3 times prior, so you love to segue me in nicely. Thank you very much for that. We're here to talk about contract reviews, aren't we? And you review a huge number of construction contracts. We were just talking off air that particularly at the back end of 2025, early 2026, there was a a spike in the construction contract reviews that you were doing and you kind of describing getting your reps in, right. I kind of want to talk today about what you look at when you're reviewing contracts and why. It was kind of talk about the pros and cons of the individual or the themes. And I want to look at this with kind of my commercial leadership hat on from both a main and a subcontractor perspective. I don't want it to be like, you know, oh, they shouldn't be doing this. They shouldn't be doing this. As you've described and experienced, main contracting is hard, subcontracting is hard. We're scrapping over margins. But I guess like just shining a light on the issues and how we can do better. And I, I had an interesting conversation with legal counsel at Tier 1 quite recently. We just kind of talking candidly and they were kind of explaining their frustrations, I guess with how, you know, on the Internet, quite often you'll see people representing subcontractors saying main contractors are terrible and they shouldn't be doing this that and the other. And the example that was thrown at me was kind of like a loss of profit clause. And they were saying we get a loss of profit clause put in our contracts and there's nothing that we can do about it. We try and negotiate out. It's one of those we can't get out so we have to hand it down. To which I said as with my my little subcontractor hat and I said, I completely get that. And yeah, I understand back-to-back nature, but for a subbie, if you have 20 packages, if you say to me the facade contractor, you know that component is in your package and then you have a loss of profit and you can do whatever you want, then I'm exposed, aren't I? Because your business is subcontractor, you can pick and choose the packages and very simple basic response like that. Just stop this person that attracts to think, OK, yeah, OK. Actually that isn't just something it is something you could pass down, but it has different ramifications for us as it does for you, right. And so that's a basic example, but the kind of tempo I want to go with in this conversation, if that makes sense. So we can like really think about how could things be different. So let's let's start with you. You talked about the first must check for you is limitation of liability. Talk to me about limitation of liability, right? Speaker 2 Yeah, it's interesting. When I entered into the contract review world and actually just as a bit of background, one of the reasons I entered into the contract review world because I thought actually probably. Speaker 1 You love contracts. Speaker 2 I do and there is that. And also I thought I think there's actually a pretty solid business model be to be hard here because there's a lot of contracts that are moving around the industry. And so as I got into contract review work, I thought to myself, I think limitation of liability actually something that needs to feature and just put every contract review that I do. In fact, it does feature in every single contract review that I do in some way, shape or form. And the reason why I say some way, shape or form is in main contracts, sometimes you have limitation for loss in use that would exist in like a Jct. contract, more like a main contract provision in subcontract versions. I tend to try and make it more broad and holistic across all liabilities because the subcontracting world is very different than a main contracting world in terms of what sort of liability profile a subcontractor can actually take on. So you have to sort of ask yourself, you know, and this is kind of where I take or one of the reasons why I take limitation of liability so serious is firstly, if a contract doesn't limit your liability or it doesn't speak to a particular subject, you can take it as read that your liability is unlimited. So yes, if it goes wildly wrong, what is your worst day, month or year in construction look like? Because you might have something you might think, well, goodness, my worst day in construction be pretty awful. Stress that over out over a month or series of months or even years. Because when something goes wildly wrong in a construction project, when does the pain and how do we stop the bleeding? Does the bleeding ever stop? Or do we bleed out on the table? And is it, is it an existential crisis for us as a business? And so a lot of the clients I I talked to, I asked them what liability profile can you countenance and some of the new clients to take on, They're like, what do you mean? I was like. Speaker 1 Well. Speaker 2 Put it this way, how much money can you lose in X amount of period of time before it puts you out of business? Speaker 1 0. Speaker 2 It's. It's usually a smaller number than you would think because or it can be the case of how many projects needs to go wrong for you before this becomes an existential crisis for you as a business. And then when I tell them that if a contract doesn't limit your liability in some way, shape or form, you're looking at an unlimited risk profile if something does go wrong. And then suddenly they're like, this is the most important part of my contract review that in their mind. Speaker 1 Hence why it's number one in your hit list, right? Speaker 2 Exactly. Speaker 1 I like your framing of like, what does the worst day on this project or worst month look like for your business, right? And then quite quickly, you can work out your fixed costs and the rest and be like, Oh my God, that for companies that operate with small margins and weak cash flow, as we all do in construction, you can see how quickly they can get out of control. But, and this is an uncomfortable place for me to be Ray, because I am a subby in my heart and soul. Yes, But if I put my main contractor's hat on, right and we talk about limitation of liability, is it you review main and subcontracts, I'm assuming more sub. I know you reviewed both. Yeah. Are we seeing in those reviews that main contracts have a cap on liability and subcontracts don't? Are we seeing that there is a cap on both? Like what's? What's your? What's your problem here? Speaker 2 It's a mixed bag really. So you tend to find that there is less limitation of liability that exists at main contract level. Part of that is, you know, what's the cost of doing business as a main contractor. Your employer usually finds it fairly offensive if you start limiting your liability when you are effectively at the helm of the ship. That's not always the case because I have negotiated limitation of liability into some main contracts. Now let's take a cladding fire remediation project for instance. You can be easily be the main contractor on a job like that because you are the only cast in town. You're the only one that's on the project when they want to peel the facade off and reinstall it. And that happens under a main contract. And quite often you can negotiate limitation of liability into those sort of contracts because you almost have a subcontractor doing a main contractor function. So particularly on those and also where cladding is the order of the day, which is a fairly risky trade all things considered, you try and limit your liability there. But yeah, in terms of actually alignment up and down the training command and This is why I think it is at times so offensive to a main contractor when a subcontractor saying, hey, want to limit my liability, I haven't got as deep pockets as you. They say, well, we haven't got limited liability and we are exposed to X amount. The response I typically have in that respect is, yeah, I understand. It's kind of two things to consider. One is typically a main contractors have deeper pockets in your subcontractor. And So what we're talking about is proportional liability, who should be shouldering what load. Your main contractor often has places that they can spread it around. So if they've got 50 to 100 subcontractors on site, site depending on the project, things start going a little bit sideways from a time standpoint or whatever the case is, it's quite often you can find multiple homes or a main contractor will attempt to find multiple homes for where they can they can spread that liability load. It's not always the case, but quite often is. And the subcontractor if, if a subcontractor is shouldering the same load as a main contractor, often that it just is an existential crisis to them as a business because they don't usually don't have as deep pockets as the main contractor. That always isn't the case. So we're talking in broad terms here, Paul. And then the other thing that I often, you know, raises with the contractor if they get aggressive on the subject is, well, who negotiated your contract? So you, you might have eye watering liquidated damages. We didn't negotiate that, you guys did. And so now we're in the position where it's not, we're saying no on that particular subject, but it needs to be proportional. And, and we weren't consulted when you negotiated the main contract for the project. And now we're being expected to take on a liability profile that could actually be a business ending event. And the other thing as well that I do actually allude to or I'd point out is there is no value for, for you if you load us up with liability to the point where we go bust because you probably lose all your warranties. Yeah, you end up in no man's land warranty wise and, and effectively you, you are de facto holding the baby at that stage. So it's sometimes you try and just pull the curtain back a bit for the main contractor to say it's not really in your best interest that we shoulder the same liability load either. Why Overly Aggressive Contracts Harm the Industry Yeah. And and I think this is so this, this is the the point that I, I've said this a few times before. I wrote my my dissertation when I did my part time studies as AQS on the negative impact of poor risk allocation by main contractors on subcontractors to margins, right? Yeah. And this is in many ways that point, right. So you could have an argument about I want to cut my liability. You don't want to get my liabilities back and forth, back and forth. What realistically is the best way, in your mind, for commercial leadership, both main and Subs, to balance this risk? What What do you see as an acceptable risk for us to take? Speaker 2 Quite often it culminates in an open dialogue. So when we start a negotiation on limitation of liability, we're usually poles apart. That's quite common and I'm OK with that because I don't mind getting a vitriolate response back to an initial starting position in a negotiation. As we discuss through what they're leveraging as a business looks like and are leveraging and all of the peripheral items that we just discussed, Paul, you get to a stage where the businesses have a mutual understanding of one another and what they both can countenance. And what you're ultimately trying to to have as an outcome is a meeting of minds. You know some some common ground that can can be achieved to the extent where they don't feel like they're burying everything, but the subcontractor doesn't feel like they're holding up the world on their own. And you and you don't often get there without dialogue. Limitation of liability is usually the last thing off the Scott schedule that gets agreed purely because. Speaker 1 It's so big. Speaker 2 It's so big and it by its very nature tends to be offensive to the to the opposing party. But it needn't be that way, because once you actually have a sensible dialogue about it, they start to understand actually where you're coming from. Speaker 1 Yeah, which is a, which is a, which is a logical and reasonable place of apportionment, right. It's just through multiple conversations with main contractors, both through work, through C link, through the podcast, through pub chat, you know, kind of come to understand that many main contractors will kind of have contracts. This is our stock contract. This is the brutal version. This is the mid level version. This is the nicer version, right? Yeah. And they will effectively kind of start at brutal and on limitation of liability. OK, Ray's pushing back. Let's give him the middle version on that one, but stick at the brutal version over here and the brutal version over here, so on and so forth. Oh, he's really pushing back. OK, we'll give him the nice version for limitation of liability, but I don't know, fitness for purpose will stay on the on the middle version, Right. And in so many ways I understand that because like, why not have a contract that is so in your favour, right? Yes, you understand that, right? Speaker 2 Yes. Speaker 1 I guess it's just when I think about that dissertation risk allocation and think about the money and time and effort spent for you to kind of negotiate limitation of liability with them and for the actual benefit that they're getting out of getting. Even if they got the brutal 1, Whether that actually lands them with a net positive result or if it's just what we've always done and therefore what we're always going to do. Do you see what I mean? Because even if even if you hadn't bothered to have that conversation and all wasted a load of time, if they took the brutal version, they don't get it anyway because the company owes Burst and they couldn't hold that kind of liability. And that's, I guess what has always frustrated me is I get it, but then I don't get it. Speaker 2 Yeah. And I think also to some degree, when you when you get the brutal version, you're like, yes, we got the brutal version. We kicked ass in that negotiation. But then you come out the other side of it and and I think actually that's that feels like a moral victory to you. But actually I'm not sure that we're thinking about this in the level of detail that we need to in terms of what's best for the industry. And there is a wider picture here that we operate in a corner of the economy that has the highest insolvency rate out of any other industry going. If we carry on at that clip, we may not have a viable industry at some point if we destroy the supply chain to the extent where there is a very slim to to no supply chain that doesn't benefit anyone. So there has to be actually some self regulating. I think that needs to happen at I think you need to start an employer level, contractor level aside, if it doesn't start appropriately at employer level, I think we've we've all got a wider problem that the contractor and the subcontractor actually fighting over something that's an employer cause issue. Even though I said a lot of main contracts tend to be fairly judiciously written, yeah, that may be the case, but the margins between employer to contractor are still appalling. And so how do you preserve your margin? You write a really aggressive contract to put yourself in an advantageous position, a contract that is so aggressively written that at times I look at contracts and I'm like, this feels like an abusive relationship rather than a contract between two, you know, commercially by. Yeah, exactly. So. So I think actually what needs to potentially happen is maybe main contractors need to actually start dealing with employers differently and think rather than thinking this is the cost of contracting, perhaps they need to start thinking, do we actually become a little bit more selective? And I I. Speaker 1 Know that we are seeing that we are seeing that honestly, we are, we are seeing, you know, over the last few months doing more and more of these episodes with senior, senior people at tier ones. And they are they are telling me this is what they're doing. They're telling me that there is kind of company level pushback and in in effect like kind of tier one level pushback. We're no longer going to accept this. And actually if you, if you listen to episode 259, which we did with Lana Rourke where they are trying to rewrite contracts at a kind of industry wide levels, no more of this nonsense. We want to improve things. It feels like through a lot of those conversations I am having. I feel like finally, it's like maybe we all are now starting to say no, no, no more of this because we can't have a skill shortage and complain about it and then treat somebody's the way that we are. We can't have the margins, blah, blah, blah. So that all feels very good. But whether that is translating today into very different subcontracts that you're doing your contract reviews on, I doubt that, right, which is why we're kind of here, which again, there is a comprehension of the practices that we currently have. This is a challenge to why, why are we doing that? Is it the right thing to be doing to be going for the brutal version or could it actually be a better decision business wise to give a good contract? And we went through the process of, let me just put it like this, We've done some highly complex deals as part of running our startup. There have been many occasions where we've seen terms and our lawyers have advised us these terms are pretty brutal or these terms we need to negotiate on them. But they come from the right place, right? Like they're thought of positively, but they're trying to manage their risk, right? And the energy with which you walk into a negotiation, which is not brutal, it's on the simpler version is you're kind of there to do the deal, not there to have an have an argument, which is kind of where we find the psyche of ourselves. So I'm rattling on a little bit here, but I think that's where I kind of want to get this. So the next one you talk about is fitness for purpose. The Hidden Dangers of Fitness for Purpose Clauses Just talk to me about fitness for purpose. It takes me back to some places of contract negotiation myself as ADNB cladding contractor. But go on, talk to me about it. Speaker 2 It's quite interesting, Paul, because I think fitness for purpose is potentially one of the most misunderstood phrases in within the industry as it sounds lovely when it comes off the tongue. I think fitness fit is fit in. Speaker 1 Your Canadian accent? It does man. I'm not sure about my Bromley one. Speaker 2 Although having said that, everyone just tells me I sound Irish at this stage because I've been here so long. In any case, it sounds lovely when it rolls off the tongue because fit for purpose sounds logical. I want something that's fit for purpose. Like when you buy a car, I want a car that's fit for purpose. Something's going to run and not break down. I think to the human mind, it sounds reasonable and it does. It sounds reasonable. The the trouble is, is it's typically uninsurable. And what I mean by that is that the the Pi market insures something or typically insures something called reasonable skilling care. Reasonable skilling care is I think effectively what you would find espoused in common law when it comes to delivering a design of sorts. For instance, whereas fitness for purpose, it's a very high bar when it comes to design and typically is uninsurable and it's looking at something from two different angles. 1 is like reasonable skill and cares and well, you know, what does that mean opposed to fitness for purpose? Well, the fitness for purpose is an outcome based position, whereas reasonable skilling care is you are, you are providing reasonable skilling care to meet a re, to meet a certain bar that is espoused in common law. They're they're almost like it not polar ends of the spectrum, but they come at it from a completely different angle. Fitness for purpose is like if my root roof is leaking at this stage and maybe that the design initially wasn't fit for purpose because it's leaking. But if the reasonable skilling care was carried out in the design of that particular roof, it may well be the case actually that we have something existent but not existential extenuating that has actually brought about that circumstance and so. Speaker 1 And so why does this matter? What are you seeing in concert reviews? Speaker 2 So I'm seeing a lot of either inferred or express fitness for purpose provision. Sometimes you do see the word fitness for purpose or fit for purpose and it like it jumps off the page and screams at me at this stage whenever I see it because that actually is the less common scenario that I see in contracts. I see a lot of inferred fitness for purpose provisions where they're not, they're not saying it outright, but what they actually are. They might be brushing up against a fitness for purpose provision or they might be pushing past it by having an outcome based scenario that they're describing in a contract. You know, where you have, for instance, like performance specs, you know, and sometimes you find the wording in a particular clause when it's describing performance specifications or what is required from a performance specs standpoint, it's close to or is bordering on or is actually a fitness for purpose provision. When you actually read it two or three times, you're like, Blimey, I think we've actually tipped into fitness for purpose provision. All it takes is an aggressive lawyer to grab hold of that and try and build a compelling case. And if the word wording is close enough to or is tipping, it hits the tipping point of a fitness for purpose provision in an infrared sentence. Suddenly actually we have a clause that could be quite dangerous to the subcontractor or to the main contractor, whoever is is, you know, we're talking about this stage. So it's something that's pretty close to my heart, particularly now that I'm looking at contract reviews is I give the design sections fairly thorough sifting to identify is something actually by the bordering on passing into fitness for purpose and moving definitively away from reasonable skill and care. Safeguarding Subcontractors and Industry Sustainability And so why would I know that we're zoomed out here, but this isn't contextualized, but why would a main contractor not want to overprotect themselves? They would, right? They'd want to overprotect themselves when employing a design and build curtain walling expert because they're employed design and build curtain walling expert, and they want to make sure that they're fully covered. Speaker 2 Yeah. So herein lies the contractual arms race or the cat and mouse game or as you said, you know, you might get the brutal version of the contract. If I was drafting a contract, I might be tempted actually to push into that territory, into fitness for purpose territory. Or it might be the case actually that the employer to main contractor contract, they've done it and suddenly now they're Lombard with a provision which for them is uninsurable potentially. And so they might be trying to voice that upon the subcontract supply chain. The trouble is when you when you voice something like that upon the subcontract supply chain, you try and acquire fitness for purpose revision is if something goes mightily wrong, you know, let's say from a design standpoint, and you call the insurers in the professional indemnity insurance policies found not to cover the occurrence that you're talking about now the subcontractor. Yeah. And now the subcontractor is shouldering that load. And we know when those sort of things come to pass, they're rarely cheap. And so you again, going back to the discussion we're having about limitation of liability is do we have a scenario where we could be putting the subcontractor out of business and now the main contractors hold the baby anyway. So again, I don't think fitness for purpose provisions benefit either party and is a feature that should be flushed out of all contracts if possible. Speaker 1 And if and if you're kind of, I guess the question is like what you know, what does the worst day or worst event on your project look like for your business? Like the subbie should be asking themselves that question every single time, but equally so should the main contractor for the subbie because if this is going to build them out of business, this is going to be a huge problem. It's almost like you've got to shoulder that cognitive load as well because you don't want to create an environment where they go out of business because it's it's just counterproductive to the entire project and whole life cycle of the of the building as well. So. Speaker 2 And also for you as a business as well, so if you've got a limited supply chain, so every conservation only has so many subcontractors they can call upon. If you inadvertently put one of those out of business, like you never intended it to be that way when you entered into contract. But so it's so transpired that you put them out of business. Now you have one less brickwork contractor, one less M&E contractor, whatever it is. Speaker 1 Yeah, we as an industry do. Speaker 2 Yeah. And and you as a business do you now it might be that you've got 4 brickwork contractors that operate within your county or your area. And if you put one another business now we're down to three. Well, what if we lose another one, we're down to 2 and then suddenly you're like flipping that we could be looking at brickwork contractors outside our conservation to try and make our projects float. And so it's in no one's best interest that we destroy the supply chain. Speaker 1 We make it sound so simple, but I think the importance of these conversations is, again, it's just reflective, isn't it? It's just putting a mirror up and just helping everyone stare into the kind of actual activity and methodology and mindset more than anything that we, we as an industry, this is how we're working. It's like, you sure you want to do that? Because to Lang O'Rourke, Kate Kennedy, they don't want to do that anymore. And they're actually saying everyone, it's all changed. So I think that's that's kind of what we're trying to do here, right? Speaker 2 Yeah. And I think actually, just lastly on that point, Paul, is that as a commercial director of a main contractor or a commercial manager or regional commercial director, whatever highfaluting position that you hold, you know, for, for main contractors, when you're checking and reviewing the contracts that you agree with the employer, because this isn't meant to be like a main contractor bashing session. It's, it's not at all. It's how do, how do we create a more positive industry that where we're all pulling in the same direction? And you know, if you, if you're reviewing a contract as a commercial director or, or someone of, of a high position within a main contract, main contracting business, just think, how do we negotiate the best terms that we can get with the employer so that way the supply chain doesn't have to suffer as a result. You know, they say the proverbial flows downhill. How do we stop it? You know, how should we stop the sewage from flowing down to the supply chain, as it were, and, and stand the tide at that point? And it sounds like, as you say, with the discussions that you have going on with main contractors, that dialogue is already being had. And there was always one thing actually that, you know, I mentioned in previous episodes that always held Morgan Sinnall in the highest regard because when I worked for that, that business, they were quite selective. They actually one particular window in time. And remember when it happened, they became very selective about what work that they were going to pick up. And I've always felt like we had a pretty healthy supply chain and had a very good relationship with our supply chain. But that started from the top in terms of how they negotiated contracts and contracts where they frankly just walked away from. They're like, we're not chasing turnover and we'd actually carry the staff for a bit longer and pick and select the right project and it in the main, it turned out better. It had a much more positive impact on the supply chain. Speaker 1 Yeah, Well, I mean, that's, that's the utopian vision, isn't it? You can be more selective, you've got more certainty, you can give the supply chain more certainty and everything is better. So that's that's what we're going for. Understanding and Managing Contractual Time Constraints Just just a couple more if we can just and maybe I'll tie these two together. Right. The two two other things that you said were time bars and condition precedent and then that kind of obviously ties to EOTS lost and expense and all that good stuff. Now when I just think about time when I and I'll consider this in the context of applications variations, lost and expense, right, I think quite often subbies kind of misunderstand their role in the wider project. Like if I don't get my application in on time, that means the main contractor doesn't get the facade part of the application all the time. They put the finger in the air kind of they walk site, try and put it in, put in 80% and then I come in late and put in 90%. There's that gap, right? Which collectively you and I haven't gone about going like getting that from the client. It should be. I always thought of it as, you know, as a team, how do we get this money from the client so that you win, I win, blah, blah, blah. This business, so like in some ways like the time barring, it's kind of like if it's in the contract and this is just the way construction contracts work, which we could have a different debate about whether that's right or wrong. But the way construction contract works is they're time bad. And therefore, if the main contractor is time bad, if you as a subbie don't comply with that, you and I can't do what we need to to get the money. Yes. So yes, like why? What, what is it that you're seeing with time, bars, condition presidents, etcetera that you're you want to flag? Speaker 2 I think kind of the wider picture is that time bars, time barring and condition precedents are not overtly offensive to a subcontracted so long as they're reasonable and they're properly explained and properly understood. Speaker 1 And back-to-back. Speaker 2 Ideally, yes. Now, it's interesting you say back-to-back because let's say for an extension time provision, the condition precedent is that it needs to be notified the delay in 14 days, OK? Quite often I've seen in subcontracts that they have a condition precedent that's calling for 14 days and you can get the responsible, it's the same in our contract. And then you ask for the contract and you've you've coming through it and actually doesn't exist. And So what you've done is you've to some degree. Speaker 1 Created. Speaker 2 Created a scenario where you boot on perhaps the supply chains neck, but you haven't got the same boot on your neck as it were. So where you're talking about back-to-back provisions, I think it's entirely reasonable. Having said that, going back to the principle of negotiating good solid contracts from the employer to main contractor position is can we acquire more time for all of us when we're negotiating that contract as a main contractor. So it might be calling for a 14 day condition precedent for extensions of time loss and expense, whatever can we acquire 21 or 28 days? Because if we can, we just give us all a lot more breathing space and what you've essentially done by has. Speaker 1 That ever been done ever 21 or 28 days it sounds like that's utopia to me I've. Speaker 2 Had quite a few actually negotiate 21 or 28 days. Yeah, but if you can acquire more time for everyone, you've got less. It's becomes less likely you're going to be arguing with the supply chain or fighting with the supply chain over over time related matters. It's not say you won't be, but it becomes less likely. So how do we make the environment less adversarial for everyone? If we can get some more time, that'd be great. Everyone wants a bit more time, don't we in construction? Well, I think one of the most oppressive parts of working in the construction industry is you always just feel like you're under time pressure. Speaker 1 Yeah, there's a gun to your head every single week. Speaker 2 Yeah, just feels like that. It's just, and then I think the undercurrent of stress we also have in our industry that that can be unhealthy at times is borne out from such matters. So yeah, if in terms of being back-to-back, ideally yes, but let's try and get some more time up the line. And I think when I, you know, we're talking about it or I've mentioned it being properly understood from the subcontractor standpoint, quite often I used to sit down with my subbies and be like, right guys, we have a 14 day condition precedent when it comes to extensions of time and loss and expense. I need you to abide by that unequivocally because if you don't, I might find myself in a position where I'm going to have to turn you over because you haven't done what you're supposed to have done in that respect. But I would set the ground rules out early that I don't want to do that. Don't put me in that position. Speaker 1 Please. Yeah, absolutely. Building Trust Amidst Adversarial Contract Terms That's we talk about that all the time. Yeah. I actually talk about that as a subway back to a main contractor, like day one of the job when I was brought onto it as a commercial lead. I would get my counterpart and say what matters to you? Like you tell me the things that matter to you. 14 days, fine, absolutely. I know I have to do that. This is what matters to me. I need payment on time. I need this, I need that. These are the, we've got a contract which is long and complex, but what are the ground rules between US? And if you're the main contractor and you're saying 14 days and subby is consistently 2128, whatever that makes sense to me. But that's like the game that we're the game of a construction project is sadly, you have these entitlements and there is a reason for that for good reason. And we just have to, that is what we're doing, right? That's the name of the game. So I, I can be on board with that. If you, and particularly if you as the main contractor, taking the right moral approach of just being really fundamentally clear, this is what I have to do. And if you don't do that, I can't get my application. I can't do this on time. You're part of my team. Let's do it. Speaker 2 No better time to to pull all of those things for subcontractors as you say that tend to be mysterious to them out of the magic QS bag at the pre lab meeting. It's like let's have a shopping list of things that like for instance, activity schedules. I want you to pull together an activity schedule for my NEC contract. I used to try and make sure that the subcontractor knew how important our activity schedule was and breaking it down into subordinate items was so that they didn't end up in a position where their cash flow was truncated because they only had five activities and none of them being triggered because they're not 100% complete. It's like I'd rather have 55 or 550 activities and know that the subcontractor is going to be in good fettle and and we can actually work together to make sure that we manage their account equally. When it comes to condition precedence, let's get those items that are going to be like hot potato, potentially nuclear disasters to your relationship with your supply chain. Let's get those straight out on the table. Yeah, let's get them aired day one. Let's make sure everyone's crystal clear as to what this condition precedence look like and how potentially damaging they could be to that subcontractor. Because it's not that we don't want to see claims, it's that we want to be able to manage those in in a right way. And so it might seem counterintuitive to open your bag of tricks to the supply chain from day one, but actually what you probably find is them, if they perceive you to be an honest surveyor, the more likely to work with you. I was trying to. Speaker 1 You want that. I would have loved it if you'd sat me down on day one and told me what was important to you because I'd give me the opportunity to tell you what was important to me. And you kind of you build a social contract, like we've got a written contract, let's have a social contract between the two of us. You want a favour, I want a favour. If we keep in bounds of this social contract, we can do it right. Speaker 2 Yeah. And it's interesting actually because you set some boundaries kind of both ways. 1 is like, here's the rules guys, let's try and all abide by them because we want to, you know, help us help you, you know, from that standpoint. But I've, I've worked with another surveyor and he used to say that he had like a three strike rule. He's like, if, if, if you try and screw me once, I'll give you the benefit of the doubt. He's like, if you try and screw me again, we're having a chat. He's like, if you screw me a third time, he's like, it's war, you know? And he used to have quite good relationships with a lot of his subbies because he would be open and honest with them to try and acquire A favorable outcome for them. But at the same time, they knew that there were boundaries. And if they ever stepped in perpetually that it was going to be problematic because he was a very good surveyor and he will find something to string you up over it. So it's just trying to, it's trying to be reasonable, isn't it? We also want to work in an industry that's reasonable where we don't, where we don't take lumps out of each other. So condition and it's interesting as well talking about condition precedence because it can be a sore point. Take the NEC contract for instance. It's a collaborative contract. We all work in the spirit of mutual trust incorporation close 10.1 and yet it is a formal contract that you know, I talked about hitting the nuclear button. It always felt like that was an NEC contract. The the first time you time bar someone, the gloves come off and it doesn't feel collaborative the rest of the journey, depending on how large that item was. You know, I've had the privilege of working on a rather large NEC project and we knew, and the, and the client knew what items they could talk, we could time bar each other on. But we had this sort of arrangement between us that we're, we're really going to try and not push that button because we know that as soon as we do, it will just sour everything and we don't want to be there. And we managed to navigate the entirety of that project with ever. Ever having to time bar one another, even though we could have done and we all had the high water, tried to make sure we're never in that position where we could be time bored. But it happened in terms of actually being exposed to or there for one reason or another. And and that's because we had a level of reasonableness we weren't advocating. Don't administer the contract properly. We all tried to do that, but we had a relationship that was deep enough that we could also work past those issues if if possible. So it's it's a combination really. Speaker 1 I often think that, you know, when you actually come down to the heart of almost every successful project because we've all worked on projects with terrible contracts and contracts which we wish were very different. But the success kind of comes out through the relationship, right? And whether you're that hard nosed QS setting that boundary of three strikes and you're out or it's you and I having that conversation to set the boundaries at the outset. Like that's kind of what gets you through. I guess it would be much better if we could have those relationships on softer, more balanced contracts. Unpacking Why Subcontractors Accept Unfavorable Terms Just your reflections as we kind of move towards wrapping up on, on why you think the industry keeps on signing such brutal contracts. Speaker 2 I I think we we live in an strangely unnecessary adversarial culture within this industry. Speaker 1 Even what you just said about that QS hard nosed, 3 strikes and then I'm coming for you. Yeah. Would you hear that in other industries? I don't know. I've only worked in construction. But it's brutal, isn't? Speaker 2 It Yeah, it is to some degree. It's a very cutthroat industry to some degree, one which it feels like the fox is auditing the hen house because when something goes totally sideways, ultimately it's like, well, who's Big Brother watching? It's the adjudicator. You have to take it sometimes the adjudication to ultimately get a ruling on it. And even then sometimes it can feel a little bit arbitrary at times as to whether that was right or not. So we, we work in a self audited industry where we are all kind of auditing ourselves. And also you talk about the fox auditing the hen house in the employer to main contractor relationship, you usually have a contract administrator squarely in the middle who is supposed to be biased. Everyone knows he's probably swinging a little bit for the employer. But generally, you know, if if he's chartered, he or she is chartered there. They should be a non bias arbiter between both parties. And typically they usually are. They're usually pretty that line. Yeah, they're pretty close to the mark. They have it in the back of their mind that that's that's what they should be achieving. Contractor to subcontractor is totally different because. Speaker 1 It'd be nice if we did have that, wouldn't? Speaker 2 It you'll be lovely, but the trouble is this is too many contracts and so the contractor is the contract administrator. So you do to some degree have a biased party administering the contract and it is the fox auditing the hand house at times. Certainly at times it's a tricky industry to work within to keep it away from being adversarial because a is self regulated and B. Speaker 1 A large one rubbish as well. Speaker 2 Yeah, more than suck. Everyone knows it and you ha a huge sway that the industry has. The contract administrator being the one that is in a position where he's always, if he's inclined to, he's going to operate in his own favor. So it it is naturally baked into some degree that it is slightly adversarial, where the. Speaker 1 Subcontractor So why are we? Why do you feel you know you're talking to subbies? I know you do contract reviews for main and Subs, but why do subbies keep on signing contracts that are bad for them? Speaker 2 Yeah, it's interesting. Sometimes they view it as the as the the cost of doing the cost of contracting is that, well, I just have to sign the contract. Sometimes it's laziness. I just can't be bothered to read this stack or where they look at it and they're like, it's a 273 page stack of legalese. Like there's nothing that's going to turn a carpentry, a carpenter's stomach more than looking at 273 pages of legalese. They don't want to read their sort of own iPhone contract. You know, their iCloud contract. Speaker 1 No one does, to be fair, come. Speaker 2 On It's funny. Speaker 1 You might be the only person I did. Speaker 2 Today. I did Today. Yeah, I downloaded the latest iOS last night. I'm not going to say I read it all, but I did have a little scan through because there's a few things. Speaker 1 I was later you surfaced and thought I don't really know what to do. Speaker 2 I was just interested in knowing what I was signing up to. Speaker 1 That is the ultimate Ray Mella Pike contract review. That is, I knew you were a contract, but you have just surpassed my previous expectations. Speaker 2 I've written to Apple. I'm not expecting a response, but yeah. So sometimes they view it as the, the cost of doing business, you know, that I just need to sign the contract, let's get on with it. And they think in their mind, or they might think we're just going to put it in the drawer. The drawer is the place where the contract goes. Umm, sometimes they have never experienced a disaster in construction. It's all gone swimmingly well for the a decade maybe. And then, you know, they get stung once and then suddenly they view contracts differently. So they they just view them as kind of this unnecessary thing that just gets put to one side and or props the door open. So there are many reasons why subcontractors sign contracts. Sometimes they're too afraid to pass comment on it because they think, well, I'm not going to win the job. And that's the most common thing. And you would be amazed. Actually the. Speaker 1 Three options most main contractors have the the brutal, the medium and the softs. Yeah, like they've got them there. And if you ask, they're used to it, right? They're they're used to Someone Like You come along and say, OK, fine, yeah, there's push back on that. I guess I might answer my own question here, but like as a final question, it's kind of like what are your major asks or like what's your one ask of commercial leadership listening to this main contractors And I guess to your point about it's the cost of doing business. Oh, can't be bothered, I'll just sign it. Yeah, of subcontractors, which I hear is that that kind of creates the environment where for a main contractor, you know the brutal, the medium and the nice contracts, we might as well love them because it's the cost of doing business to the subbies. They're just going to sign it or most 90% of them will sign it. Happy days, right? Strategies for More Balanced and Reasonable Contracts Yeah. But I guess my ask, Steve, I'm answering my own question here. My ask is like a reflection of commercial leadership on that point. Like do we need those three types? Like can you do an ROI on that and tell me what your return is? Because I imagine it ain't great if you think about the time spent negotiating, the frustration of the subcontractors and then the actual return if it all went wrong because like, is that risk well allocated? So that would be my ask. What's your, this is I'm the host, but I just, I'm getting frustrated by this. I'm the host. I'll ask you as my guest, what do you think? Right. Speaker 2 Do you mind if I reframe it slightly? Yeah, as in if I'm. Speaker 1 You are going to be the host the next time I'm not going to come on to, you're not going to come on to my show, I'm going to come on to yours. Speaker 2 Are you telling me you need to start a podcast? I ain't going to have time for busy reading iPhone contract. So let me just try and perhaps maybe rephrase that slightly differently, as in just as a prefacing statement. I think it's probably fair to say that main contracts and subcontracts are out of kilter, as in they're not representative or reflective of one another. I've read both, read them all the time. Main contracts tend to be quite, like I said, quite judicious in terms of actually how they're drafted. Subcontracts tend to be not always but Claflin are outrageously aggressive or a landslide in favor of one party and are certainly not written for the health and well-being of the recipient of the contract. Now in my own mind, what are the key areas that we could do with focusing on in terms of of what, what should we be looking at to improve within the industry, within our contracts? I think 1 is expect limitation of liability from the supply chain and actually that is healthy for the industry. And equally if you can acquire some limitation of liability up the line, grab it with two hands. I think the other one is sweeping liability clauses. Even though limitation of liability can be inbuilt and it's, it's a very good thing the amount of sweeping liability clauses that I see or read, and I'm not going to regularly out of contracts. They're, they're all over the place. It's like a, it's like a Serbian minefield reading some of these contracts. So can we word certain clauses or certain provisions less aggressively so that it doesn't feel like an abusive relationship? Umm, because I think if we're all setting out on the right foot from day one, we're less likely to end up in an almighty tangle later. And then I think the other one as well is as a main contractor, perhaps. Let's not try and step the whole contract down into the subcontractors contract. The reason I say that is it's hard enough As for the supply chain to let's say you, you or subcontractor, you get 10 jobs. Some are Jct. 1 might be a fiddick, couple of Necs, couple of bespokes in there. Like you've got like you're playing so many different games all at once. We've got a game of ice hockey going, a game of football, a game of basketball, 1 of cricket and someone's playing golf. Because all the rules in this contracts are all different, it's very hard for the supply chain to administer all those those contracts effectively. So if you if you step down your contract into each of those contracts, now we've got an extra layer of liabilities and rules to abide by, it becomes unmanageable for the supply chain. So I'm not saying we don't want to see any of the main contract provisions, but what I'm saying is if you have some that are particularly precious to them, precious to you that you want to step down into the subcontract, let's know, let's know about them, let's have those declared. But what we don't want to read is 53 pages of prelims from the main contract and then we don't want to read another 86 pages of main contract amendments. And you get what I'm saying, it becomes exponential at some point we're just blows A subcontractors mind. And also, if, if a subcontractor pay me to do this subcontract review, they don't want me to read 300 pages. They want me to read the subcontract amendments. And maybe that's about it. A few other bits and pieces rather than the main contract as well. But trying to, you get to a stage where you could be administering 2 contracts. And I think just lastly on that point of main contract step down is particularly germane to the Jct. uh, contract. You'll see in the Jct. main contract suite, typically we have something called the main contract information schedule, the Jct. main contract and the Jct. subcontract. They're not really that conversing with one another. The NEC is different. It's pretty conversing with itself, but the Jct., umm, subcontract and the main contract sometimes feels like feels like you're reading different languages because they're they're built differently. And so that's why you tend to have the Jct. main contract information schedule because you're looking to step down or to have certain provisions where you wave the flag on them to the subcontractor. Be aware of this stuff and it might be your main contract particular isn't a handful of other things, but if you have a whole wholesale main contract step down into the subcontract, it just becomes an unmanageable beast at some point for the subby if they've got that times 10. So I think it's trying to create reasonableness within the industry and I think we've drifted to some degree away from reasonableness because when you have 42 number of documents in the subcontract agreement, the sub you ain't reading all of them. It becomes an ask covering exercise at that stage. And so it's trying to keep keep it reasonable. Towards a More Profitable and Functional Industry If ever there was a place to alight, let's try and keep it reasonable, it's probably that, right? And it is always a thorough pleasure talking to you. And you're, you mentioned that some people might think that you are Irish nowadays, but like your North, North Americanness came through in how you articulated your sports There first came ice hockey. Yeah. Then there was a mention of basketball and only latterly did you mention cricket. And I reckon you mentioned that exclusively for my ears just. Speaker 2 To keep the the British public happy that we squeezed. Speaker 1 One exactly, exactly and every day was full. Speaker 2 Don't bring up the the Olympic ice hockey final. I don't want to talk about it in any way, shape or form. Speaker 1 I wouldn't do that. I wouldn't do that. Ray. It's honestly a pleasure to have you on the show. As I said, go back and listen to episode 165. It's my favorite Own the Build episode. Thank you for coming on the show, Ray. That was #4 There is definitely a #567-I reckon. Speaker 2 We could do it, Paul, and thanks ever so much for having me. And can I just say, you know, as my last death rattle on this podcast is that it's not meant to be a main contracting bashing session at all. I think where we want to be is we just want an industry that is fully functional, where in the main. Speaker 1 Projects. Speaker 2 Everyone's making money, all high 5 in pop and champagne corks F1 style. Let's go, let's that's the industry one because if you have a supply chain like that, the main contractors be making more money as well. Let's all help help one another engineer more profit within the industry. And you know, I'm not saying let's give the employer a good kick in, but the employer's been getting an amazing deal since the credit crunch. The margins took an absolute nosedive. It's like the energy industry, you know, when the energy prices go up, they never go down quite as much as they should. So, you know, I think we just need to kind of level the playing field a little. Speaker 1 Bit I completely agree and great place to end. I will be back next week. Ray will be back in the future. Thank you very much.