Is Prevention Still Better Than Cure?
It’s Monday and it’s 4:45 a.m. You’re stepping out of the house in the dark. You can count the hours of sleep you got last night on one hand - and have three fingers to spare. You’re sick of these meetings. You know there’s a verbal beating waiting for you at the other end of this journey.
Just as bad was your spouse’s silence when you said you had to leave early - again - for an emergency meeting - again - with the owners of the project. And you can’t blame her. She knows that if one more project goes sideways your company’s shareholders might move you sideways as well. Then what?
Why is it always the same? Why do you have to explain the delays, the cost overruns? You don’t have all the answers. Your project managers and directors should have them... and yet... they don’t have. They’re on site, you’re not. They’re smart, they have college degrees, they’re paid well. What’s the problem? Are they really useless? Surely not. Plain lazy? Don’t care?
Does any of this resonate with you?
It can be frustrating when you’re the ‘face’ of a major construction project and don’t feel like you’re in the driver’s seat. The project seems to be driving you... into the ground. I get it, because in my years as one piece of a big puzzle delivering multiple projects concurrently, I’ve been there. Every time the phone rings, it’s bad news. My favourite challenge to Project Managers and Directors was:
“You will let me know if something ever goes well, won’t you?”
Of course, there are many reasons why a project’s timeline slips, dragging profits down. Multiple, inexplicable overspends. But when you dig deep, behind most of these there’s a common thread. And it’s not lazy project leaders…
It’s the contract. Specifically, the clauses in the contract that didn’t get the attention they deserved from the get-go.
Today - weeks into the project - has anyone read the contract in detail, cover to cover? Do individual project team members understand their contractual obligations? Is there a plan to eliminate or at least mitigate project-destroying contract risks? Most likely: “No, no and no”.
But it doesn’t have to be that way.
A stitch in time saves nine.
There’s a reason that old adage has survived the test of time: it’s true.
Making an investment to identify contract risks during the first stage of any construction project - the tender stage - i.e. getting someone to scrutinise your contract and find its ticking time bombs, is absolutely vital.
Business-destroying clauses aren’t always included in contracts on purpose. They may be innocent mistakes or oversights in drafting. Or ‘cut and paste’ provisions from a previous contract that really shouldn’t be in yours. Like the 12-year warranty on plants that I found recently...
But let’s be honest: your client isn’t looking out for your bottom line, they’re looking out for theirs. If people on their side don’t understand the complexity of today’s projects with their crazy design concepts, inadequate briefs, impossible time frames, 5D BIM and BEAM Plus Platinum, their inexperience won’t help. But, more likely, this isn’t their first major build, they know exactly what huge risks are involved and they’re extremely skilled at putting all of these onto your plate.
Either way, someone needs to take a critical look at every contract clause, especially ‘Z clauses’ and ‘Special Conditions’. Not to mention those other contract documents such as Preliminaries, Specifications and Pricing Schedules where yet more time and profit-sapping gems will be tucked away.
I know what you’re thinking, so... Let’s bust some myths.
“We have someone in-house who reviews our contracts, I’m sure we’re covered.”
Not entirely a myth, but not entirely fact, either. What you have, most likely, is someone checking payment terms, preparing cash-flow forecasts, identifying damages for delay; essentially ticking boxes to secure tender approval from management. Not someone looking for unusual clauses - or spotting missing clauses - that will create major headaches later on.
“We have lawyers who review our contracts, we’re protected.”
Mostly myth. Unless your lawyer has worked ‘hands on’ in the construction industry and has personally suffered the pain of convoluted contractual games, your contract likely isn’t roadworthy.
Don’t get me wrong, I know lots of very competent lawyers who know the ins-and-outs of international trade and commerce rules. They’ll keep you out of regulatory trouble if you’re bidding on a project in a foreign country. But they won’t necessarily see the loopholes that come into play on the job site, the ones that can strangle you later.
“I’m not worried, we’ve used the same contract with this client for years, it’s worked so far.”
Myth. If there’s anything I’ve learned in my 35 years of boots-on-the-ground experience, it’s that no two projects are alike. There’s no such thing as a ‘fair and reasonable’ contract these days and, sadly, few entirely loyal clients.
The chances are that things haven’t gone sideways to date. You’ve delivered a good service and hence they’re back. But what if something goes wrong, something completely beyond your control? Maybe the client’s organisation is bought by another. Your friendly client’s representative moves on. The most loyal customers can become costly adversaries.
“My client would never agree to any changes to the contract, it’s not worth asking.”
Myth. But I understand the concern. It took me years to take the plunge and - respectfully - request some edits to protect my employer from serious financial damage. You’d be surprised. I’ve even had clients in Saudi Arabia sign off on amendments. The risk allocation was so unbalanced, they couldn’t justify it.
I’ve also discovered that clients actually trust and respect you more, because they see that you’ve taken the time to understand the project and its risks. They can’t blame you for wanting to limit your exposure. They’re happy to deal with someone who recognises the challenges ahead and has plans to deal with them.
“We’re at tender stage, there’s no need to review the contract now.”
Myth. This is the perfect time to ‘pop the bonnet’ and take a good look at the contract. It’s more difficult to propose changes to terms and conditions, bonds, warranties and guarantees after you’ve won a bid. Open the door to future discussions. Save money and headaches by laying a good foundation. Get unfair and off-market risks removed. Plan to eliminate or minimise the remaining risks. Maximise the opportunities discovered. It’s crazy not to...
When was the last time one of your projects finished on time, within budget - and you were paid fairly? Years ago, maybe never? Whatever happens on your next project, be confident that fingers will point to other parties and individuals, not to your company and you. Negotiate final accounts and payments holding all the cards you need to win those arguments.
Prevention is better than cure.
How many times have you heard this? You may sometimes say it yourself. Because it’s true.
You might think that you don’t need, or can’t afford, to hire a consultant to review your project’s contract, especially at tender stage. But when that document - hundreds of pages - lands on someone else’s desk, internally, are you confident that they’ll see it from every angle? Do they have 30+ years’ experience of reviewing complex construction contracts, scars from delivering hundreds of projects, will they spot the unusual and off-market provisions?
Your project manager or director - given a clear contract risk ‘road map’ for his project - is far more likely to take action and plan to avoid these risks, maximising the probability of success. He’ll be far more open with you about any risks that bite. Delays and additional costs will be identified earlier, allowing timely notices to be given, in exactly the form required by the contract. Monthly reports to your client will record contractual entitlements to more time and money. Seeing the speed bumps before hitting them, your team can drive over them without damage.
The project’s bottom line will be better. Period.
Over the years I’ve watched colleagues suffer - mentally and physically - from shockwaves coming out of contracts. There’s no need for this. Those risks were in the contract all the time, they just didn’t see them until it was too late. That’s what motivates me every day. I want to prevent that gut-wrenching feeling that so many industry professionals endure, the sleepless nights, the strained relationships. That’s my passion now.
When you’re working on a complex construction project there are always three components: the known knowns, the known unknowns, and the unknown unknowns.
The first, most straightforward of these: the “known knowns”. These are things we know we know. You know your business, its regular challenges, and what needs to happen to see a project through to successful - and hopefully profitable - completion.
Second, the “known unknowns”. We know there are some things that we don’t know. They may or may not happen but, if they do, they’re not a huge surprise. They can be anything from a major weather event to a breakdown in the supply chain thousands of kilometres and three time zones away from where you’re building. Tender prices usually include a contingency for such risks.
The third component, the “unknown unknowns” are the most damaging. These are risks we don't know we don't know. Consequently, they are rarely allowed for and can hurt us badly when they bite. But this suffering can often be avoided or minimised. The secret is to convert unknown unknowns into “knowns”. When it comes to contracts, this means getting the right person to illuminate them before you sign a final binding contract.
You don’t want to be getting up early again, heading for that verbal beating. You don’t want to be on site again, trying to find out what went wrong and why. You want to be in your office planning the future growth and success of your business and going home at night to enjoy time with your family.
Engaging the services of someone who has the experience, practical knowledge and diligence to scrutinise your next - or current - contract is the simple ‘prevention’ needed to avoid expensive future ‘cures’, which are typically applied too late and with slim chance of recovery.
If you’d like to learn more about how I can help, you can schedule a short call with me below - at a time and date to suit you - with no cost and no obligation.
I’d also be interested to hear about the “unknown unknowns” that you’ve discovered during your time in the industry!
Here's the link to schedule a quick call : https://calendly.com/rob-hill-1/15-minute-call