Alan Baybut spent 30 years as a Commercial Director for some serious main contractors. He’s now working with us, helping trade contractors understand the contract game.
Some of what he’s revealed will wind you up.
The Two Biggest Mistakes
Letters of intent. They’re shortcuts. Someone wants to start work without placing a full contract.
Problem? Letters of intent should contain everything a full contract has. But people cut corners. Then something goes wrong. You’re stuck with an ineffective contract.
Letters of intent from clients to main contractors? Usually okay because solicitors prepare them. Down the chain? Disaster. Avoid them.
Not getting subcontracts back-to-back. You take on risk under your contract with the client. But you don’t pass that risk down to your subbies. You’re stuck bearing risk you can’t recover.
Alan’s lost count of how many times this cost millions. Requirements coming down that weren’t passed on. It sticks with whoever didn’t back it off.
Why Risk Gets Passed Down
Main contracting is fundamentally about risk management. The easiest way to manage risk? Pass it down the supply chain.
When the client sends amendments there’s often more pages of amendments than in the original contract. Every amendment addresses a problem they had before.
Alan’s solution? Government should make it illegal to amend standard contracts. Would save hundreds of millions.
Instead? You get contracts loaded with conditions you don’t understand. Most trade contractors just sign. They want the order.
The Amendments Are There to Screw You
When you get conditions with loads of amendments, start worrying. They’re not there for your benefit. They’re there to pass risk onto you.
Some conditions can wipe out a business. Delay costs, for example. If you delay a main contractor by three weeks, every other subcontractor’s claims could come to you.
Big enough to bust the average subcontractor. You’ve got to have the guts to kick back.
The barrier to entry is so low. Anyone can set up. If one company goes bust, there’s hundreds more. Creating a race to the bottom.
Hope isn’t a strategy on 3% margins.
When Preferred Supplier Lists Go Wrong
Getting on preferred lists helps. They build trust. Offer preferential payment terms. Agree contract terms beforehand.
Until it doesn’t work.
Alan had one highly trusted contractor on the list.
On one job, the subcontractor messed up. On another, it was the main contractor who cocked up.
So two claim situations. One each way. The subcontractor held them to ransom.
Lesson? Don’t have two or more large contracts with the same subcontractor simultaneously.
What Makes Good Supply Chains
Good supply chains work when you build trust and working relationships.
Key elements: three or four subcontractors per trade for competitive pricing. Build regional coverage and mutual trust.
When it works, subbies work night shifts and weekends to get you out of trouble. Things you wouldn’t get without that relationship.
But it’s difficult to get right.
The Future: Supply Chain Due Diligence
Construction is heading towards comprehensive checks. Right to work. Training records. CSCS cards. Accreditations.
Main contractors want matrices of workforce accreditations. Everyone on site has right tickets. Is working legally.
Traditionally took dedicated staff. Alan’s team had two people full-time just keeping accreditations up to date.
The future is automating this. Click of a button, provide everything. Right to work? Done. Accreditations? Done.
Firms that can demonstrate comprehensive supply chain due diligence instantly?
They’ll win work. They’ll get on preferred lists.
The Bottom Line
Avoid letters of intent. Get contracts back-to-back if passing work down. Read amendments carefully. Some conditions can cost you dear.
Preferred supplier lists help but aren’t bulletproof. Start thinking about supply chain due diligence now.