Completion & Retentions
Without doubt the messiest part of projects we see is the end. Rarely is the completion processes of a project followed as per the contract. If there is no contract then no one brings any formality to the end of works. Very often the work ends because the parties fall into dispute and one party walks away, or is terminated. When the dust settles, there are disputes over payment, work incomplete, retentions, liquidated damages, and delays.
I thought it would be useful to look at the many factors around the completion of a project for you to consider, with view to tightening up your processes and getting paid for the work done. The most relevant way to do this is to look at the most common reasons for non-payment at completion, and how you can avoid them. This breaks down further into three reasons:
Not to ‘pay for work done’
Not to pay for retentions’
Reasons to ‘back charge’.
Not Paying for Work Done
Work is incorrectly valued: The client will argue at the end that some part of the works was over charged and so will seek to deduct the alleged overcharge from the final payment. You must provide at the end of the works a reconciliation of the whole project, no matter how small. Include a copy of the contract or agreement along with any agreed rates.
If you have done work adopting reasonable or market rates you should have had those approved prior, but in any case if your client has accepted and paid on those rates in previous claims it makes their reasoning much weaker.
Work is Defective: The client will often say that works are defective when no issue with defects was raised during the works. When you reach completion you should invite you client to inspect the works and create a defect list and rectify quickly and get a sign off. Doing this forces your client to commit to defects if any, upfront; rather than leave the issue to fester for your final claim. If you tackle it head on it will be to your advantage. Once committed to a list of defects it is very hard for your client to later argue for a while lot more defects.
Another way to deal with it is to invite a court accredited expert to prepare a report on the works. This may cost $1500 but is worth it in many situations. That way your client can’t invent new defects. The expert’s view will prevail.
Work was Done by Others: The client will argue that some of the work was not done by you, but by another contractor engaged by the client. This is either true or not. If it is true then you need to value and quantify what work was done by the other contractor as your client will often overstate this amount. Send your valuation to the client and incorporate it into your final claim as a deduction. If it not true then it must be rejected in writing immediately. These kinds of issues may need to be adjudicated to get resolved.
Not Paying Retentions
Work is not Complete: The client will argue that the work is not complete and this will arise from how ‘Complete’ or ‘Completion’ is defined in the contract. Often contracts will say work is only complete when it is defect-free. You must reject these definitions as a $2 defect can prevent $100 000 retention payment. Further the client can always say there is a defect for the hell of it.
It is far better to carefully consider a realistic definition of ‘Completion’ when you contract. One definition based around ‘complete such that the works can be used for their intended purpose barring minor defects’ and similar, are the more sensible definitions.
If there is work that is not done then the client is right and you have not completed the work. So it is always worth going through your scope again to ensure all the work is done and all variations completed.
No Formal Notice: Whether the contract requires it or not, it is always good practice to formally send your client written notice that you consider the work complete, and the date that you think completion was reached. Too often no one has any idea what date completion occurred and yet it is central to retention claims and liquidated damages claims. If your client is not giving you a date then you provide notice of what date you think completion was achieved.
Reasons to Back Charge
Defects: see the notes on Defects above. The two key issues to be settled are 1) Are there in fact defects? and 2) What is the realistic rectification cost? You will be best placed if you are controlling these issues. Otherwise your client will argue that there are defects when there are not, or value them at 10 times their true value. If you cannot get agreement here then engage an expert to report on the works. It will be well worth it.
Liquidated Damages: By far the most abused provision of most contracts. The key to avoiding this issue is to claim Extensions of Time [EOT’s] when they occur in the correct documented manner. At time of contract look at what it says about claiming EOT’s, and have the fight early if they are too limiting. Your client will try to avoid issuing any EOT’s. You need to be on top of that by claiming them when it is fair to do so.
Also be aware that unless it can be shown that you alone prevented the works from completing on time then your client will find it hard to make liquidated damages stick. But to avoid the issue you need to be satisfies that the contract allows you enough time to complete and that you get the EOT’s you need during the work.
Arbitrary Costs: The client will argue that because you didn’t do your work correctly or completely it incurred an array of costs, that you must cover. The key here is substantiation. This is either true or it isn’t, and if it is, your client had better be able to show how those costs relate to your work. Often these will be raised without any notice during the work. Unfortunately these disputes end up in adjudication most of the time. All you can do is reject them in writing and ask for proof.
The above is but a brief summary of issues to manage when you complete work. Most contractors have slacked off by this time and there is almost no documentation about what happened at the end of work; yet it is the most important time, as now you are claiming that final amount which holds your profit.
So get focussed, and improve your processes around project completion.