LEGAL AID - A contractor has withheld £18k and is claiming a further £60k from the subbie because the project did not meet practical completion. Is there any way to dismiss the claim?

The client took occupation of the building in early October 2005, approximately at the main contract completion date. As the building was not completely finished the client requested that the contractor remain on site until practical completion, which was achieved on 12 December 2005. The contractor advised us that we were responsible for the delay in achieving practical completion and withheld £18,000 from our valuation. On the 13 March 2006 a detailed claim arrived for about £60,000. Can we rely on clause 46 (3), which sets out a time limit of 56 days between incurring an expense and the provision of full details, to dismiss the claim? As practical completion was achieved on 12 December the 56 days elapsed around 6 February 2006.

Time is not on your side

While clause 5 of the GC/Works/Subcontract form provides that the subcontractor shall comply with all the provisions of the main contract insofar as they relate and apply to the subcontract works, the reverse does not apply – that is, the main contractor does not undertake under the subcontract to comply with the main contract provisions.

This applies to the timing of the provision of information under the main contract, which is between the main contractor and the client. Accordingly, clause 46(3) of GC/Works does not apply to the subcontractor. There is, therefore, nothing that limits the contractor’s time for delivering its detailed claim.

Furthermore, under clause 11.8 GC/Works/Subcontract, no requests for extension of time may be submitted after the date of completion of the subcontract works. If it was your intention, it is too late.

Julian Holloway, partner at Berwin Leighton Paisner

The contractor should have acted sooner

Clause 11 in the GC/Works Subcontract has an elaborate set of provisions for ensuring that the subcontract works are keeping to programme.

The contractor is required to notify the subcontractor of the dates of progress meetings. You should have been invited to some. Prior to each meeting you should have submitted a progress report. Within 10 days of each progress meeting the contractor was required to tell you whether he considered your works to be either on time, delayed or early. Also he should have detailed the steps, in accordance with any agreement with the project manager and/or yourself, that he intended to take to reduce or eliminate delay.

The point I am making is that if the contractor advises you out of the blue that you are in delay, one has to doubt the veracity of the claim. The matter should have been addressed long before he made the allegation of delay.

Also, if the client was able to occupy the building in early October there was the possibility that the building was, in fact, practically complete at that time (rather than on 12 December).

It is not clear from your question whether you were bound to complete by the date of practical completion of the main contract; you will need to consult your abstract of particulars in subcontract documentation.

Legal aid panel
(l-r) Ann Minogue, Julian Holloway, Rachel Barnes, Rudi Klein, Andrew Hemsley, Dominic Helps

If the contractor advises you out of the blue that you are in delay, one has to doubt the veracity of the claim. The matter should have been addressed long before he made the allegation of delay

In order to pursue his claim for £60,000 the contractor has to follow the requirements of clause 12. He should have notified you within a reasonable time of the date for completion of your works (or any revised date) that you are in delay.

Furthermore, he must have provided within 45 days (not 56 days) of incurring the alleged expense, “full details of all expenses incurred and evidence that such expenses directly result from the subcontractor’s failure to complete”(clause 12.3.4).

Since the contractor has not complied with the subcontract he cannot exercise his contractual entitlement to any expense for any delay.

My advice is to inform the contractor that you will be referring a claim to the adjudicator for your outstanding payments.

Rudi Klein, chief executive of the Specialist Engineering Contractors Group

Case law may come to your aid

Firstly, you cannot rely upon clause 46(3) of the GC Works Main Contract form, which relates to the main contractor’s obligations to the client. They do not translate into obligations to a subcontractor.

The main contractor’s withholding of £18,000 is only defensible if it can be shown that you failed to complete the subcontract works on time and the main contractor has properly notified the delay in accordance with clause 12.2 of the subcontract (which he appears to have done) and if he has issued a valid notice of withholding. If he did not, then he wrongfully withheld those monies.

The additional claim for £60,000 is probably for other subcontractor costs and/or liquidated damages applied by the client. The main contractor would not be able to deduct these monies in a similar manner to the £18,000 above because practical completion has been certified and there are no more interim payments against which a notice of withholding can be issued. The main contractor will either have to wait for the final account mechanism in clauses 21.4 and 21.5 to try to recover these monies or he will have to commence adjudication and/or arbitration proceedings. In this situation, there is no specific requirement for the contractor to provide full details of his claim within a particular period.

However, you may well have a complete answer to his claim. Case law makes it clear that the fact that the client has taken possession of the works before completion means that the main contractor’s obligation to continue with the work ceases and is replaced by a defects liability obligation.

Accordingly, it is arguable that from that date the main contractor had no obligation to the employer for delay costs and, likewise, from that time you would have no obligation for similar losses to the main contractor.

Dominic Helps, partner at Shadbolt & Co