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The economic downturn is affecting all parties in the industry, including clients, who will need to take action to safeguard their profits. Measures taken will impact on contractors, so it is worth considering the actions clients may take.

Suspending projects prior to contractual commitment would be an option for developers. They will be reluctant to build a property without a tenant or purchaser to take it over on completion, and the downturn will reduce the number of end-users seeking premises.

The developer will be aware he could suffer the loss of rent or sale price as well as the cost of maintaining an empty building, which may include the payment of rates under the Rating (Empty Properties) Act 2007.

Even when projects have been designed and the tender process started, it could still be less costly for them to suspend construction.

In terms of projects already under way, a tactic may be to delay handover to increase the chances of a sale or let before committing to running costs. Procedures to keep the contractor on site could include extensive or spurious defects lists or fault-finding in documentation such as ‘as built’ drawings, O&M manuals and certification.

A developer’s bespoke terms and conditions may provide for suspension of work at any time during the contract period without incurring loss and expense for the contractor.

The JCT 2005 suite of contracts provides for postponement of any work under the contract, for example in SBC and SBCSub. In these forms the contractor may claim direct loss and/or expense.

In extreme circumstances a client may evaluate the financial risk of suspension or termination without protection from the contract and go ahead, bearing the subsequent costs.

Conversely, a building owner would be anxious for a contractor to perform in the event that the owner has a purchaser or tenant waiting. An extension of end date may not be acceptable, and instructions to accelerate to maintain the original date for completion could be given.

Precautions for dealing with acceleration have been flagged up in an earlier piece (EMC, October 2008, page 53).

Clients will be tempted to omit sections of work to achieve savings by instructing others to carry out the work at a lower price. Contractors should safeguard their profits by claiming for their losses on substantial omissions. In the event that work is given to others, a loss of profit claim would be allowable, as in Amec ºÚ¶´ÉçÇø v Cadmus Investments (1996).

In other cases, they must check the contract conditions and pursue. It is common for a loss of mark-up including profit to be paid when large omissions are instructed.

Pursue, cajole, negotiate

When money is scarce, non-payment and late payment will obviously supplement a client’s cashflow. Contractors must act quickly to pursue, cajole and negotiate, and issue writs or notices of adjudication when appropriate.

Actions to recover a debt may be thwarted by turning the debt into a dispute, however spurious. The client’s consultants could apply the contractual requirements for submitting an application strictly, thereby perhaps negating any payment.

Amendments to the contract that favour the employer include extended payment periods, onerous set-off and cross-contract set-off and pre-adjudication procedures. These familiar irritations will have tougher consequences in hard times.

Further protection may be sought by the requirement for a performance bond or parent company guarantee. A wise contractor will refuse providing an ‘on demand’ bond as the bond can be called in without evidence of the contractor’s default.

A contractor may require overdraft facilities during lean times. Be aware that using the bank as bondsman will reduce the overdraft facility by the bond sum. You can avoid this by using an independent bondsman.

It is even more important to check contract conditions prior to commitment and always to take account of the requirements. At the first sign of trouble, take action.