This, just in: performing contract management in the construction industry is nothing like having a weekend job at a pizza joint. You’ve been warned.
I’ve been in this industry a fair while now. But I’ll never stop being surprised by the amount of projects that end badly – just because somebody didn’t get something in writing. And I know I’ve said this before, so please bear with me – it’s important. The industry we’re in is inherently unfair.
Imagine you work at the local pizza place, don’t write an order down and forget to charge a customer $1 for extra anchovies. Depending on your boss’ management style, of course, the outcome is most likely to be one of the following:
- Nobody cares, and you move on
- Nobody cares, and you move on, or
- Nobody cares, and you move on.
Even if your boss finds out and asks you to cough up the extra dollar, it’s unlikely to have any ramifications for you. But if you make the same mistake in a construction project? Disaster.
Big Guy Vs Little Guy
I recently read something that reminded me of a case that began back in 2017, yet another cautionary tale to come out of the last few years. It goes a little something like this:
In May that year, an Australian E&I (The Contractor; the big guy) asked an earthmoving company (The Subcontractor; the little guy) to dig trenches so it could lay cables down for a project. The work was done.
The Subcontractor then made a payment claim for additional works not in the contract, supported by a Surveyor’s report.
The Contractor believed it shouldn’t have to pay that additional sum. It felt that the Subcontractor had inaccurately calculated the additional work. Crucially, nothing had been written down.
The Subcontractor made an application for Adjudication. This was accepted.
The Adjudicator turned to the Contractor’s supporting documentation to help find his answer. One section in this documentation conceded that the Contractor and Subcontractor had come to a verbal agreement on the correct way to calculate the extra work. This agreement, he felt,
“…[did] provide confirmation that the claimant and respondent used a process outside of the subcontract to vary the scope of work and, therefore, the value of the work.”
He continued along this line of thought.
“Given the nature and frequency of on-site decisions required when work is in progress, it is conceivable that a discussion took place and an agreement reached about work that constitutes a variation.”
The Subcontractor must’ve breathed a sigh of relief. But it was far from over.
Digging a Deeper Hole
Unfortunately for the Subcontractor, there was a separate aspect of the Adjudicator’s decision that would give the Contractor, referred to below as the respondent, a new leg to stand on. A leg that would lead the case all the way to the New South Wales Supreme Court.
“Based upon the information provided to me, the respondent has not convinced me that no variation was agreed or that the claimant has over-claimed for the work…”
This statement, argued the Contractor’s legal team, implied that the responsibility of establishing a ‘sufficient basis’ for not paying for the variations was being placed on the Contractor, when it should have been the Adjudicator’s decision.
The hole grew deeper.
All’s Not Necessarily Well that Ends Well
The Supreme Court did agree that the Adjudicator had made a poor choice of words.
But fortunately for the Subcontractor, it didn’t agree that this placed the onus on the Contractor. Nor did it agree that the Contractor shouldn’t have to pay the fees.
This must have been a relief for the Subcontractor. But there would have been a significant cost.
Anybody who’s had to navigate the waters of the legal system will tell you – it’s no holiday cruise. Time, money and livelihood all get thrown down the drain. And you’re just one phone call away from a fate you can’t bear to think about.
So I think the lesson here is this: requesting things in writing, dotting the ‘i’s and crossing the ‘t’s can be uncomfortable, especially if your client’s not used to that, or expecting it. But it’s a hell of a lot better than the alternative.
Imagine your anchovy-loving customer comes back to the pizza shop one day and, prompted by your boss, you politely mention the mix-up. Chances are, she will:
- Remember, smile and hand over the dollar coin
- Remember, roll her eyes and hand over the dollar coin
- Not remember, but smile and hand over the dollar coin; or
- Not remember, roll her eyes and hand over the dollar coin.
But as for taking you to court? Not on your life. The only supreme this lady’s going anywhere near is your latest work of art in that square cardboard box – extra anchovies, of course.