You are the weakest link

For the construction industry, ProCure 21 is big business. So far, almost £1.7bn of work has been let using this system, and NHS Estates has appointed 12 principal supply-chain partners (PSCPs) to operate it. One of them is a firm with the interesting name of Medicinq Osborne, which I shall simply refer to as MO.

As a principal supply chain partner, MO is expected to have an established supply chain, bound together by openness and mutual trust. A key component of the relationship between the PSCP and the supply chain is a fair allocation of risk. In fact, NHS insists that its PSCPs demonstrate that their treatment of the supply chains is exemplary.

It is, therefore, with some surprise that I recently received from one of my contract monitors a copy of MO’s subcontract for use on its Procure 21 work. NHS Estates issues its PSCPs with the Engineering and Construction Contract (popularly known as the NEC contract). But MO issues its supply chain with the NEC subcontract accompanied by a plethora of amendments, which are almost as long as the subcontract itself. The primary reason for a party amending a standard form is to ensure that the bulk of risk is firmly lodged with the other party. This is hardly a good omen for a relationship that is supposed to rest on openness and mutual trust.

All the usual adversarial weaponry is available in the MO’s subcontract documentation including performance bonds, parent company guarantees and retentions.

The subcontract works information is in the main contract documentation. Why isn’t it extracted and included in the subcontract documentation? Presumably, the process of extraction involves some risk for MO in that it does not trust itself to particularise the relevant information for the subcontractor. Moreover, the subcontractor is to assume the liabilities and perform the obligations of MO in relation to the subcontract works – whatever they might be. In common parlance this is “risk dumping”. So, if MO has delayed or disrupted the subcontract works any resultant liability falls on the subcontractor.

Payment cycles in MO's subcontract are on the high side – a maximum of 65 days. However, this figure assumes that the assessment intervals in the main contract are monthly.

The payment of retentions is linked to main contract completion. When that happens, the first half of the retention fund is released. The second half is released on the issuing of the main contract defects certificate. Since the timing of the release of retentions in the main contract is likely to be a highly mobile feast, such provision would not be acceptable as an “adequate mechanism” for payment under the Construction Act.

Some compensation events in the NEC subcontract are ruled out by MO’s amendments. Such events, if they occur, enable the subcontractor to become entitled to extensions of time and compensation. For example, MO’s failure to provide the subcontractor with possession of the relevant part(s) of the site by the requisite date, or failure by MO to provide anything (including information) that it is obliged to provide by the date(s) in the accepted programme, will not entitle the subcontractor to claim a compensation event.

The set-off clause is broad. Set-off can include sums that “the contractor anticipates suffering or incurring by reason of any breach or any failure to observe the provisions to [the] subcontract (or of any other contract between the contractor and the subcontractor) by the subcontractor”. With such a wide provision, MO is enabled to exercise the right of set-off from day one because, arguably, it can anticipate suffering or incurring sums arising from the likelihood that the subcontractor will be in delay for whatever reason.

MO seeks to remove from the scope of adjudication any communication from the client that is passed on to the subcontractor. Such communication is deemed final and conclusive (whether, for example, an instruction, decision or opinion).

Subcontractors working for MO under these conditions may be left wondering whether this Procure 21 stuff is all that it is cracked up to be. They will, rightly, wonder whether anything has really changed. It is vital that public sector procurers send out a clear message that traditional adversarial practices will not be tolerated between first-line contractors and their supply chains.

I know that NHS Estates shares this view; this documentation has clearly escaped its scrutiny.