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Problem Solved

Disagreements and personal differences

By | Food for thought, news, Problem Solved

A good company board is one of the keys to a well-run business, and if it’s doing its job, it should identify key issues that need to be resolved for development to take place, generate a constant flow of ideas and engage in regulated decision making.

That all sounds beautiful, positive and progressive, but as we all know, it doesn’t always turn out that way.

The personal dynamism that the board relies upon can turn into disagreements which, if left to fester, can crystallise into acrimonious disputes.

Pushing disagreements under the carpet

If left underneath the surface these disagreements can undermine the smooth functioning of the board and thus the company’s performance and, ultimately, could threaten the company.

In the infinitely variable play of human conduct, disagreements can arise over strategy, financing of the company and remuneration, conflicts between Directors’ interest in the company and outside interests.

Most of these conflicts are underlined by:-

  1. Lack of a shareholders agreement;
  2. Personal differences.

So, what can you do about these conflicts?

Well, as they say, prevention is better than cure, so it would be my suggestion to work extremely hard to create a culture that minimises the two things that cause most conflicts.

Here are just a few ways to do that:

  1. Clarifying authority, roles and responsibilities;
  2. Establishing regular board meetings with an orderly process;
  3. Meeting outside the business – combining meetings with team activities;
  4. Ensuring the flow of full information to all board members;
  5. The Chairman being wise enough to draw out disputes between parties and drawing the poison (chair needs to be able to encourage Directors to reach a consensus during this process);
  6. Incorporating Alternative Dispute Resolution into the company’s culture.

Our next blog will look at how having a shareholders agreement, although it sounds dull and legalistic, can be an enormous help in preventing and resolving disputes.

John

A cosy relationship or a contract?

By | Problem Solved

The Problem

I have been working on a large building site for the past 6 months as a contractor.  The site has been split into 5 phases, and I have almost finished phase 2, and have submitted my tender for the next 3 phases.

I have done a few small jobs on phase 3 which I have been paid for at my tendered rates.  I have spoken to the contracts manager about a written contract for the remainder of phase 3 and phases 4 and 5, and he replied:  “Just crack on with it”.  But I have my reservations about doing this without a contract or at least a letter of intent.

I have had no problem with payment in the past from this company, and don’t expect any problems in the future.  I would like some advice about how to tackle the situation, as I do not want to upset what has so far been a good working relationship, and where I stand health and safety wise working on a phase of the site that I have no contract for.

Thanks in advance for your help.

Malcolm

Michael’s Response

Hello Malcolm.  Although I understand that you do not wish to upset a good client that has, no doubt, provided a good source of income, it is vital that you ensure you have a written contract in place before you start your next phases.

What you are essentially doing when you record the agreement in writing with your client, is taking out insurance on the contract.  No matter how big or small a construction project may be, the majority of contracts, once signed, will be stored and never the see the light of day again.  However, when there is a dispute, the second thing that a company will do (the first being to instruct its lawyers!), is to open the bottom drawer of the filing cabinet and take out the contract that has been laying there since the start of the project.

Letter of Intent

As regards to the so-called letters of intent, I am definitely not a fan!  A true letter of intent only expresses a party’s intention to enter into a contract at a future date.  Yet the number of letters I have seen that are headed ‘Letter of Intent’, are in fact binding agreements.  I understand that on some projects, there is a need to start the works very quickly, meaning that a contractor needs to be appointed on at least the work that is at the early stages of the programme. Where this happens, a combined Early Engagement Letter and Letter of Intent can be drafted, which allows a contractor to commence part of the works under a contract, whilst waiting for the main works contract to be drafted out.

Health & Safety

Regarding health and safety, although no doubt this will form part of your written contract, there will still be strict requirements that you will need to observe, which are implemented by statute, for example the CDM Regulations 2015.  As an employer you will have duties that are also governed by statute, for example to provide adequate information, instruction, training and supervision to enable your operatives to carry out their work in a safe manner.  Even self-employed persons have duties under the law in relation to their own health and safety, to ensure their work does not put others at risk.

Late Completion and Delay Damages

By | Problem Solved

The Problem

We entered into a contract to build 3 detached bungalows on the outskirts of Rugby.  The form of contract was not a usual standard form, but one that our client had drafted in-house, and it is fairly basic, which to be honest, suits us.

One of the terms that the contract did include was for a penalty if we failed to complete on time.  Unfortunately, we did not complete on time, and the client is now seeking a whopping £27,000 based on the 9 weeks that we were late completing.  Is there anything we can do?

Shaun

Response:

Ouch!  £27,000 is a big hit for your job to take.

Your problem relates to delay damages, and more specifically liquidated damages (e.g, the contract has set out a pre-determined periodic rate should you fail to complete on time).  I am therefore assuming that there is a valid liquidated damages clause in your contract and that there was a single date for completion.  I also assume that the rate for any delay caused to the date for completion as a result of contractor culpability was expressed as £3,000 per week (i.e. £3,000 x 9 weeks = £27,000).

Questions on delay damages have been quite frequent over the years, although since I last responded to a problem on liquidated damages (back in early 2013), the law has shifted, albeit because of a private parking charge case back in 2015, which my column touched upon in March 2016.

Prior to 2015, even where the parties had agreed in writing the rate of damages for delay, if challenged the employer must show that the liquidated damages rate was a genuine pre-estimate of the likely loss at the time they are fixed, otherwise the liquidated damages stated in the contract would not be enforceable (albeit the employer would not lose entitlement, but would then need to prove its losses).  This principle was established in the 1915 case of Dunlop Pneumatic Tyre Company Ltd. v New Garage and Motor Company Ltd.

Is a clause a penalty and enforceable?

In 2015, a dispute over a £85 private parking infringement notice went all the way to the Supreme Court.  The importance of this case however, was not the outcome, but the new test that the Supreme Court laid down for deciding if a clause is a penalty and thus unenforceable.  That new test was that the charge was neither “extravagant nor unconscionable”.

Until 2015 therefore, to successfully defend a challenge to a pre-determined loss, all the innocent party needed to show was that the sum was a genuine pre-estimate of the likely loss to be suffered at the time the sum was fixed.  Now, and providing that the innocent party has a legitimate interest in the sum claimed, the liquidated sum stipulated must not be extravagant or unconscionable when measured against those interests.  Quite what this means in practice is not yet clear and will no doubt be the subject of arguments in the future.

£3,000 per week for 3 bungalows, although high, I would say is probably seen as neither extravagant nor unconscionable.


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All Builders Problems Solved articles are a response to real problems experienced in the industry and we invite you to submit details of your own legal issues using the form at the bottom the Builders Problems Solved page. If your matter is used the advice is free. We do however assume we have your permission to publish the article on our website and on our social media platforms, although the names and details will be amended so that you may not be identified.

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Issue of the Final Certificate under the JCT Intermediate Building Contract 2011

By | Problem Solved

The Problem

Back in 2014, the building company I work for entered into a JCT Intermediate Building Contract 2011 to construct a large extension to a health and fitness centre for a well-known company.

Soon after work was started on site, it became obvious that the person, who had been nominated by the external building consultants as the contract administrator, was well out of her depth.  Fortunately, we took the initiative and ‘powered’ our way through the project, meeting the original date for completion.

The end of the defects period arrived in mid-2016, and having received the list of defects from the same contract administrator, we were pleased to receive the certificate of making good and the final certificate shortly after attending to the defects.  The final certificate had even agreed our final account and released the retention.  However, we have since hit a brick wall with the client, insofar that it is refusing to make payment against the final certificate on the basis that it not only disagrees with the level of the final amount certified, but is also claiming that the contract administrator should never had issued a certificate of making good defects because defects still exist with our works, which the contract administrator failed to note on her initial list of defects.

The monies that are owed were certified towards the back end of 2016, but the client has not issued a pay less notice.  Can you give any advice on how to proceed?

Jake, Stapleford.

Michael’s Response

In spite of what must have been a difficult project due to a ‘below-par’ contract administrator, your company deserves credit for achieving its obligations as to time, and no doubt your client, at least at the time of completion, must also have been pleased to have use of its new facilities on time.

Although you have mentioned that your client has not issued a pay less notice against the final certificate, which I would normally observe that in the absence of a timeous pay less notice, the amount certificate must be paid and then argued later, your overall situation is different with the contract administrator having issued the final certificate.

Under your form of contract, where the final certificate has been issued, this becomes conclusive evidence on matters such as the standard of workmanship and the quality of the materials are as described in the contract documents, or the adjusted contract sum is in accordance with the terms, unless challenged by some form of proceedings no later than 28 days after the final certificate has been issued.

I therefore recommend that you instigate [adjudication] proceedings, for the monies certified in the final certificate based on the absence of a timeous pay less notice.  Any proceedings that your client may instigate in relation to the recovery of [what it may see as] any over-payment, and / or alleged defects, notwithstanding latent defects, you have the evidence of the final certificate in defence to this.  If there were indeed defects outstanding at the time that the contract administrator issued the final certificate (even if the defects were simply missed by the contract administrator), you will not be liable to make good those defects and the only recourse for your client would be to bring a claim against the building consultant who employed the contract administrator.

The advice provided is intended to be of a general guide only and should not be viewed as providing a definitive legal analysis.

No payment from a regular source of work

By | Problem Solved

The Problem

I am a carpentry sub-contractor, with most of my work coming from one source, a main contractor.  When I take on work for this contractor, it is usually by way of a verbal agreement.

Every Friday they email me a list of work to be carried out the following week, and at the end of that week, I email an invoice for each individual job.  The verbal agreement on payment is 7 days and the contractor makes payment straight into my bank account.  This has been the case for several months.

However, no payment was received from the contractor on 31 March.  When I spoke to them, they said that full payment would be made the following Friday.  This did not happen, and when I chased them up, they stated that one job I had done was unsatisfactory.  I immediately attended to this, only to be subsequently told that the job was still not satisfactory and they had employed someone else to fix the problem.  They have since told me that they will be contra-charging me for the cost, and in the meantime will be withholding all payments due to me until they know what the cost is.  They also stated that as there is no written agreement on payment terms, I cannot class the payment as late.

As they did not notify me that they still had an issue with my work and allowed me the chance to put the supposed issue right, can they then contra charge me?

I have since sent 3 final payment demands, but received no replies.  Nor have I received a pay less notice.  If payment was due on 31st March 2017, can this now be classed as having missed the final date for payment?  Also, has the contractor missed the chance to issue me with a pay less notice?

Name withheld

Michael’s Response

There is a binding contract at the point that you commenced the work (your commencement signifies your acceptance of the main contractor’s offer for you to carry out the work listed in the email), and this is known as contract by conduct.  Although there may be an absence of written terms, there will be implied terms and terms that may be incorporated in each contract by reference to your previous course of dealings with the main contractor, providing there was a reasonable expectation that the term you seek to rely upon would apply, and there are no other contrary terms.

In addition, the Housing Grants, Construction and Regeneration Act 1996 (as amended), will also apply to your contract, which in turn will imply part 2 (payment) of the Scheme for Construction Contracts, and although you may not be entitled to stage payments (for stage payments to apply, the duration of a contract must be estimated not to be less than 45 days), you will be entitled to receive payment by the ‘final date for payment’, although this is a much longer period than the 7 days you have said you agreed with the main contractor (it will be at least 47 days following completion of the work).

Whether or not the contractor has failed to issue you with a timeous pay less notice will depend on whether the previous course of dealings or the Scheme for Construction Contracts applies, although in all probability, in the absence of a pay less notice under either term, the contractor would have missed its chance.

On the contra-charge, the contractor must give you an opportunity to carry out the remedial work.  Whether or not your first attempt to make good is considered as giving you that opportunity will depend on the actual circumstances.  That said, without a timeous pay less notice, the contractor is not permitted to make any deductions from the amount due.

The advice provided is intended to be of a general guide only and should not be viewed as providing a definitive legal analysis.

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All Builders Problems Solved articles are a response to real problems experienced in the industry and we invite you to submit details of your own legal issues using the form at the bottom of this page. If your matter is used the advice is free. We do however assume we have your permission to publish the article on our website and on our social media platforms, although the names and details will be amended so that you may not be identified.

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Making a case to extend time

By | Problem Solved

Problem

I work as a contracts manager for a main contractor.  Back in January 2016, we started work on the refurbishment of an office block in Birmingham.  It was nothing too complex, and we were supposed to finish in December 2016.

However, delays were incurred during construction, resulting in the eventual completion being at the end of March 2017 – approximately 13 weeks late.  Most of the delays were down to us (let down by a couple of sub-contractors), although part of the delay was the client’s fault.

At a meeting towards the back end of 2016, I approached the client and stated that we would not make a claim for an extension of time with loss and expense, providing the client would waiver its claim for liquidated damages.  The client seemed quite enthusiastic about this and said it was a good idea.  This arrangement was kept to, until we put in the payment application just before completion of the work.  Although the client’s agent certified most of our application, we then received a letter from the client headed up ‘Pay Less Notice’, which claimed that we were late in completion and therefore had a right to deduct the liquidated damages as per the contract.

Can the client do this?  What can we do?

Kim

Response

Hello Kim.

If you wanted to have made the ‘arrangement’ binding, you should have executed a side agreement, which is an agreement that sits in parallel to the main agreement but effectively moves the goal posts as regards to the terms of completion.  From your outline, I very much doubt you could establish a binding agreement was reached, or there was a legal waiver as to the right to claim damages or, estoppel.

Your client, as the employer under the building contract, was quite within its rights to issue a pay less notice.  Where an employer to a construction contract wishes to set-off sums against a payment that is due to a contractor, it is mandatory for the employer to issue a pay less notice, and providing the pay less notice is a) issued on time; b) specifies both the sum that is considered to be due at the date the notice is given; and c) the basis on which that sum has been calculated, then the pay less notice is valid.

However, it does not mean that the pay less notice cannot be challenged.  For example, if the contract is a JCT, a condition precedent to the deduction of liquidated damages is for a notice of non-completion to have previously been issued.  You could also challenge the liquidated damages as being a penalty if the damages are extremely high when compared to the actual or likely losses.

I would however suggest that the best way forward, would be for you to provide the necessary level of evidence that would establish that you are not responsible for at least part of the delay, and then try and reach a formal agreement where each party is responsible for its own costs.

© Michael P. Gerard

May 2017

The advice provided is intended to be of a general guide only and should not be viewed as providing a definitive legal analysis.

Was the water proofing firm appointed as a domestic sub-contractor?

By | Problem Solved, Uncategorized

Problem

I am hoping for a bit of understanding around an issue I have.

My building company started a refurbishment contract a few months ago and were appointed under a JCT Minor Works Building Contract.  When carrying out the works, an area of damp was found and I instructed a specialist water proofing firm to go into the property install a vertical DPC and apply Sika render.  I am now writing up a report about the project for the client and am trying to understand the water proofing company’s contractual role.  Am I right in saying that the water proofing company was appointed as a domestic sub-contractor as they were paid and managed by my company?

I understand minor works contracts are not suitable for named specialists but I was wondering whether this was true if the specialist had to be appointed after the contracts were signed.

Hopefully that makes sense and I would greatly appreciate your advice.

Samir, Leicester

Response

Hello Samir. In a nutshell, because you instructed, managed and paid the water proofing company, it would most likely be a domestic sub-contractor.  I say likely, because you may have instructed the sub-contractor on behalf of the employer (providing you had authority and made this known to the sub-contractor at the material time), whilst managing and payment does not necessarily indicate a contractual obligation.

If the sub-contractor had addressed its estimate to your company and you accepted this estimate without reference to a third party (i.e. the employer), then your company would have entered into a legally binding contract with the sub-contractor and thus the sub-contractor would be a domestic sub-contractor.

Under the JCT Minor Works Building Contract, there are no provisions for nominated or named sub-contractors.  Any sub-contractors would either be employed by the principle contractor or directly engaged by the employer.  If the employer wishes to nominate or name a specialist contractor, then there are other contracts in the JCT suite that will accommodate this.

© Michael P. Gerard, April 2017

The advice provided is intended to be of a general guide only and should not be viewed as providing a definitive legal analysis.

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What’s Your Legal Issue?

All Builders Problems Solved articles are a response to real problems experienced in the industry and we invite you to submit details of your own legal issues using the form below. If your matter is used the advice is free. We do however assume we have your permission to publish the article on our website and on our social media platforms, although the names and details will be amended so that you may not be identified.

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When a customer cancels a contract

By | Problem Solved
[ultimate_heading main_heading=”Problem” main_heading_color=”#000000″ alignment=”left” margin_design_tab_text=”” main_heading_font_size=”desktop:18px;” main_heading_margin=”margin-bottom:15px;”]I quoted for a painting and decorating job and the quote was accepted by the customer.  The customer then asked me to supply the materials that she was originally going to supply.  We agreed that I would supply the materials at an additional cost to the quotation and everyone was happy.

However, I have just received an email from the customer to say that her usual painter and decorator could now fit her in, so she would no longer be requiring my services.  However, I have already ordered and paid for the materials she requested and because the materials are special order I cannot return them or use on any other jobs.  Can I request that she pays for these materials and where do I stand in the future on customers accepting quotes and then cancelling?  Many thanks in anticipation.

Ken, Somerby[/ultimate_heading]

[ultimate_heading main_heading=”Response” main_heading_color=”#000000″ alignment=”left” main_heading_font_size=”desktop:18px;” main_heading_margin=”margin-bottom:15px;”]You and your customer have entered into a binding contract for you to carry out certain painting and decorating works (as stated in your quotation), and in return your customer has agreed to pay the sum quoted.  You and your customer are therefore bound by the terms of the contract and a breach by either party could result in the innocent party claiming its losses.

Under a contract, there are three types of terms – warranties, conditions and innominate terms.  A warranty is a minor term of a contract and if breached, the innocent party may claim damages arising from the breach, but is not entitled to end the contract.  A condition is a major term which goes to the root of the contract and if breached, the innocent party is entitled to repudiate and end the contract.  Innominate terms lie between warranties and conditions.

In stating that your services are no longer required, this would be a breach of a condition which would entitle you to accept the wrongful repudiation (you will need to reply to your customer’s email to say that this is a repudiatory breach of which you are accepting), and bring the contract to an end, the result of which would entitle you to claim for any work done (including the materials that you have purchased), plus any loss of profit.

Michael Gerard[/ultimate_heading]

Trade Supplier and Court Action

By | Problem Solved
[ultimate_heading main_heading=”Problem” main_heading_color=”#101010″ sub_heading_color=”#666666″ alignment=”left” main_heading_font_size=”desktop:18px;” main_heading_margin=”margin-bottom:15px;” sub_heading_font_size=”desktop:13px;” sub_heading_line_height=”desktop:20px;” margin_design_tab_text=””]

I am a timed-served bricklayer and in 2014 I set-up a limited company to do a job for a main contractor.

Once the limited company was set-up, I opened a trade account with a well-known chain of builders’ merchants. However, the trade account that I opened was not a business account but a personal account, and I used my own UTR number for tax purposes, although I did not provide a personal guarantee.

The merchant gave my account a £20,000.00 credit limit and I always paid on time for 8 months while the job was on going. I have now reached the end of the job and the main contractor is stalling on paying the final account. I currently owe approximately £16,500.00 to the merchant, but I have no way of paying this personally. The merchant has now closed my account and has issued a winding up order. The main contractor will pay but I don’t know when. I was wondering where I stand on paying back the merchant or will the company just fold and they will get nothing.

Any help on this would be great.

Mustafa, Blaby
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Hello Mustafa. You certainly have a problem, and you will need to act as soon as possible.

There is some important information which I would need to know to be able to give you specific advice. For example, have you been issued with a winding up application or order? An order will be from the Court whilst an application will be made by the builder’s merchant to the Court for the winding up. Are the proceedings in the limited company name or your personal name?

From your outline of the matter, as the trade account is in your name I fully expect that the proceedings will be against you personally and you will be personally liable for the debt, not the limited company and hence, proceedings to secure the monies will be against you personally, not the limited company. I am however, bemused about your reference to a winding up order. Limited companies are subject to winding up orders whereas someone who has personal liability is subject to bankruptcy proceedings.

The builder’s merchant may have issued a statutory demand for the debt, and if you failed to pay the amount claimed or remained silent, then a petition would be issued for your bankruptcy. A bankruptcy petition is an application to the court for an individual’s assets to be taken and sold to pay the debt and it has nothing to do with the company.

If the proceedings are against your limited company, then the builder’s merchant would have issued a winding up petition against the limited company but if the application is successful, it is only the limited company that is affected, not you personally.

All that said, why are you not attempting the secure the monies owed from the main contractor, as surely this would solve all of the problems? You will need to look at your terms and conditions of contract in relation to payment, but the Housing Grants, Construction and Regeneration Act 1996, as amended by the Local Democracy, Economic Development and Construction Act 2009 requires all construction contracts to have an adequate payment mechanism and failing that, a payment mechanism will be implied into the contract.

Good luck.
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Over-valuation of building works

By | Problem Solved
[ultimate_heading main_heading=”Problem” main_heading_color=”#101010″ sub_heading_color=”#666666″ alignment=”left” main_heading_font_size=”desktop:18px;” main_heading_margin=”margin-bottom:15px;” sub_heading_font_size=”desktop:13px;” sub_heading_line_height=”desktop:20px;” margin_design_tab_text=””]

Having read the Leicestershire Builder for the past year or so (which I find is an excellent read), your column has always caught my eye, and although I am a client as opposed to a contractor or builder, I was hoping that you may be able to give me some guidance on a problem I believe I have.

I purchased a house in 2014 and then set about instigating plans for a major refurb. My lack of expertise on such a project meant that I employed an experienced Architect from the outset, and when I engaged the builder, a JCT Intermediate Form of Contract, 2011 with contractors design was executed. However, I have become increasingly concerned that the Architect is over-valuing the work carried out by the builder. I did seek professional advice from a quantity surveyor who said that the work may be over-valued, although the advice was not specific and lacked detail.

I have poured a lot of money into this project and want to ensure that I get value for money. Any suggestions?

Benje, south Leicestershire
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Hello Benje. You appear to have procured your project correctly, and in theory your Architect should be a pair of safe hands when it comes to administering the Contract. However, where an Architect has issued his interim certificate for payment, you maintain the right under the Contract to pay a lesser amount than certified providing you have issued a valid and effective pay less notice.

If you are going to issue a pay less notice, it is of paramount importance that it is issued on time and is effective. If the payment provisions of the Contract are un-amended (section 4), the builder is required to receive payment within 14 days from the due date unless it is in receipt of a pay less notice no later than 5 days before the final date for payment. If you issue the pay less notice late, even by one minute, no monies can be with-held. In addition, the pay less notice must also include a) the sum that you consider to be due on the date that the notice is served; and b) the basis on which that sum is calculated. It is also imperative that the pay less notice comes from you as the employer named in the Contract or a duly authorised person on behalf of you providing you have notified the builder in advance (see clause 4.12.1.1 of the Contract).

However, if you do issue a pay less notice, there is a risk that the builder will issue a notice of its intention to suspend performance under clause 4.13, followed by a notice to suspend. If the builder does suspend performance, you will need to consider your options under clause 8.4.1 of the Contract, and in particular sub-clause .1, although you must be absolutely certain of your position and the validity / effectiveness of any pay less notice issued prior to invoking clause 8.4 and the sub-clauses. You must also realise that in agreeing to the JCT IFC, the contractor has a right to refer any dispute to adjudication (unless the relevant clause has been omitted).

My suggestion is to have a meeting with your Architect and discuss your concerns. Your Architect is well experienced and should be able to explain how and why the costs have been evaluated. However, it is vital that you do not attempt to interfere or influence the Architect otherwise this could be considered a repudiatory breach of contract, which would allow the builder to accept the breach, bring his employment under the Contract to an end and pursue you for damages.

I wish you good luck with your project.
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