For me, it is somewhat gratifying that the Court of Appeal has condemned clauses that make payment entitlement dependent upon the contractor or subcontractor executing certain documents such as warranties and performance bonds.
I have always doubted the legal enforceability of these clauses because they are so open-ended. It is ridiculous to assume that such clauses enable a client to obtain the benefits of the work done by the supplier without having to pay for it because a certain document has not been supplied.
Consider the converse position. It would be nonsensical if the contractor or subcontractor were to require the client to provide a parent company guarantee as a condition precedent to it discharging its own obligations and liabilities under the contract – that is, carrying out the necessary works.
But Ann appears to have a bee in her bonnet” about the failure of contractors or subcontractors to produce necessary documents properly, efficiently and succinctly. Everybody contributes to the paper mountain, Ann, not just contractors and subcontractors. All sides are guilty of failing to produce the necessary documents on time or at all.
In the 1970s, the BRE examined the causes of building defects. In the course of its research, it found that the greatest cause of defects was a failure to supply prompt and adequate information right from the top to the bottom. Therefore, Ann’s final question needs to be addressed to all sides of the industry, not just contractors and subcontractors.
In the context of the New Millennium Experience Company case, however, it is not hard to see why the trade contractor did not supply the required documents. There was no mutuality in the requirement to provide parent company guarantees and performance bonds.
Why doesn’t the client provide a parent company guarantee and payment bond to guarantee its payment performance? That aside, the clause in question represents a style of contracting that believes that the only way to obtain the necessary performance is to beat the other party about the head. This is becoming a bit dated.
If the construction industry and construction clients have the ability to move towards
greater teamworking and partnering, these problems should not arise.
Rudi Klein is a barrister and chief executive of the Specialist Engineering Contractors’ Group.