Is your contractor or delivery partner performing?

Registered providers and local authorities alike will have expectations of what their contractors or delivery partners should ultimately provide in relation to their new-build and existing property portfolios.

Most of those expectations are codified within the contracts that govern the relationship between the parties, and some of those expectations are further governed by statutes and regulations. However, experience shows that those expectations are sometimes not delivered upon and the consequences can be serious. The financial and safety ramifications of a poorly performing builder can be far-reaching; from demands for more money to complete projects, to delays to completion, drawn-out remediation of defective work and even the discovery of dangerous or non-compliant elements of work when the properties have been let for many years.

Last month, Countryside Partnerships PLC, which claims to be ‘the UK’s leading mixed-tenure developer’ published a trading update following a review of its site operations. The update gave an insight into some of the issues that had been hurting Countryside’s financial performance, including excess manufacturing capacity, an underperforming company acquired in 2018 and disruption caused by substandard quality from underperforming trades such as ground workers, timber-frame and roofing contractors. Cost escalation was also blamed for eroding profit margins and significant sums had been committed to fire safety works. Many who work with Countryside will be very interested in these findings and will undoubtedly wish to discuss any impacts on their own live projects.

For every public limited company like Countryside that may be obliged to make trading statements, there will be countless other contractors that are not, so warnings or admissions such as these are in many cases conspicuous by their absence. Private companies’ filed accounts are often many months out-of-date even when they are filed, so knowing how a company is performing is not likely to be straightforward. Given the current and ongoing construction industry problems relating to the limited availability and increasing costs of materials and labour, together with the market’s preference for ‘fixed’ lump sum contracts, the squeezing of margins is increasingly likely to manifest itself in ‘corners being cut’ and this could mean that important expectations are missed. Lengthy and costly disputes could be the result.

Delivery problems can be noted during regular site meetings or visits by an experienced contract administrator, employer’s agent or client representative. Not only can those cut corners be physically witnessed, but other features may also be manifest. For example, a single sub-contract trade that has stopped attending the site might have its own financial difficulties, causing relatively minor issues, but multiple missing sub-contractors would suggest that it could be the main contractor’s inability to pay that is the real problem. In that scenario, paying further money to an impecunious and possibly insolvent contractor could unlock progress on the one hand, but on the other, if the financial situation is serious then those payments could ultimately be lost as good money after bad.

The receipt of poorly-considered or exaggerated claims for extensions of time, loss and expense and/or alleged variations to the contract are also indicators that all may not be right with the contractor. These can be methods used by a contractor to seek to reduce its time and financial pressures, deflecting blame elsewhere but ultimately expecting its customer to meet the costs in an attempt to salvage dwindling (or negative) profit margins.

As regards quality and safety issues, the clerk of works role has also made something of a comeback in recent years and this can be a useful investment to ensure that issues with quality are identified as early as possible. Sometimes, this can mean that a serious defect that would otherwise have been concealed by final finishes and ‘signed off’ at practical completion is identified in time to be addressed. Building Control will inspect and sign off certain elements of a build at certain stages, but by no means will they inspect everything and even if they do miss something, they may not have any liability for doing so.

Sometimes, the change from a healthy to a distressed project is much more subtle and can initially be reflected by a contractor becoming more (or sometimes less) contractual in its dealings. It is important not to ignore any warning signs and to press for information and reassurances where appropriate. It is also important to understand each party’s respective rights and obligations in order to make informed decisions that will help, rather than further harm, the outcome.

Provided that a suitable analysis is carried out early enough, a problem project can often be put back onto the right track through robust contract management and be successfully delivered, rather than being allowed to fester and deteriorate further. Engagement and real-time resolution of issues as they appear tend to lead to a better outcome than a full-scale final account dispute at the end of the project.

For more information

If you would like to find out more on what your contractors or delivery partners should ultimately provide in relation to their new-build and existing property portfolios, contact Paul Slinger.

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