Improve supply chain relations through contractual awareness


Having spent over 25 years of my professional career running businesses within the supply chain, it became apparent that understanding your obligations, liabilities and entitlements under the subcontract is extremely important.

Lack of understanding creates so much contempt within the contractor/subcontractor relationship.

I taught myself to be contractually aware after many years of being the subject of maltreatment by the main contractors, suffering many years of underpayment, non-payment, being forced to work out of sequence, and delay caused by their inefficiencies.

For a number of main contractors, it became their business model to recover their low margins through a 10% underpayment of their supply chain. This 10% under-payment, being approximately the subcontractors’ net margin or, in some cases more, resulted in many supply chain administrations. And to make matters worse, on top of the underpayment came the non-release of retentions, adding a further 5% to the loss!

Ten years or so ago I secured the services of a contract/dispute expert who took over our commercial department. This resulted in a dispute with just about every contractor we were working for once our entitlements were highlighted. We ended up preparing for litigation, but always came to a settlement pre-litigation. Unfortunately, due to exercising our entitlements or recovery, we became known as a ‘bad subbie’ and were actually blacklisted with many Tier 1 and tier 2 contractors as a result. In most cases the CEOs and senior directors were unaware of these practices, as it was often the commercial managers who carried out most of the bad treatment.

However…they were completely and utterly missing the trick!

They failed to realise that underpaying and undervaluing their supply chain negatively affected the supply chains’ ability to perform, which meant build programmes were seriously affected, causing prolongation and delay for the main contractor, which actually cost the main contractor massively on prelims. It was just so utterly counterproductive.

So… since I flipped the coin and became a developer, effectively becoming a main contractor and employing the services of many subcontractors, I already knew the importance of treating the supply chain the right way.

Paying the supply chain on time, and agreeing favourable terms helps and even increases subcontractors’ cash flow and increases their production rate on site. Plus, they actually want to work for you. They want to turn up, they want to increase resources and want more work from you.

Instead of trying to keep the supply chain in the dark, we actively educate them on the implications of the contract they are signing, not only highlighting their obligations, but also pointing out their entitlements. We have regular progress meetings with the sub-contractors and involve them in programming, highlighting the effect and potential contractual issues caused by not completing their tasks on time.

Helping them understand the contract has helped our supply chain become better subcontractors, which in return increases production and helps us achieve our completion dates on time. Morale is always high on our developments. We treat our subbies more like development partners – without them, we wouldn’t have a business model that works.

The Tier 1 and 2s completely miss the trick!

Share this story:

About Author

Comments are closed.