Improving the Payment Process Through the Use of a Schedule of Rates
By David Brown, Managing Surveyor at IBN Scaffold Access Ltd and Chair of the NASC Contracts Committee
While great strides have been made in the post-Carillion era to shine the spotlight on the importance of prompt payments to subcontractors, more must also be done to streamline the pre-payment process – something that will benefit the whole construction industry.
It is clear that the failure of main contractors and other clients to stick to agreed payment terms can severely impact on a subcontractor’s ability to continue to operate.
That is why it has been great to see such prominence given in recent months to the need for fair payment practices to be adopted and adhered to and more and more companies sign up to the Construction Supply Chain Payment Charter.
But while it’s only right that payment practices are tightened, more can be done by both clients and subcontractors to further improve the pre-payment process through better management of sub-contract accounts during the course of the Project.
The area we are particularly focused on here is ensuring there is no discrepancy between client and subcontractor on the cost of the works carried out, something that can easily arise through the undertaking of additional works.
Additional works are commonplace on almost all construction projects. This comes despite the best efforts at tender stage to produce a detailed and fixed schedule of works as unfortunately in our industry plans and programmes change, which result in a change to the planned works. When the original scope of works changes resulting in additional works, it is only fair that the subcontractor is remunerated for the additional works carried out.
From the client’s perspective they need confidence that the additional works have been valued fairly and where appropriate on a pro rata basis to the items detailed in the original scope of works. The extent and cost of additional works can often be the cause of conflict between the client and subcontractor and create an additional barrier that prevents prompt payment.
The NASC encourages scaffolding contractors to avoid any uncertainty regarding variation orders through the use of a schedule of rates, an example of which is included in the CG11:17 Preparation of Schedule of Rates guidance.
The incorporation of a schedule of rates into a contract can have a number of advantages:
- Rates for additional works are agreed from the outset
- Disputes in connection with the valuation of additional works are avoided completely or at least significantly reduced
- Valuation and payment of additional work is made easier and earlier thereby improving cash flow
- Schedules can be incorporated within the sub-contract order
- Final accounts are prepared more quickly because of fewer disputes
- Clients appreciate the clarity on how additional works are measured and valued, something an agreed schedule of rates can achieve
A schedule of rates should be prepared at tender stage, negotiated with the client during pre-contract discussions and incorporated into the contract documents / orders from the outset. It is possible to agree them after the contract has started particularly if the contract is unexpectedly found to be subject to an excessive number of variations, however the preference would be to agree a schedule of rates in the first instance.
A schedule of rates can help to significantly streamline the pre-payment process and also ensure the client / subcontractor relationship isn’t affected by any financial disputes.