Starting at the top of the chain, the employer – particularly if this is a developer – will have entered into a number of agreements that impose obligations on it in relation to the completion of the works: property agreements with adjoining owners, agreements with its bank or forward purchase agreements, lease agreements with tenants and so on.
Although some developers have occasionally tried to impose the obligations arising under these agreements lock, stock and barrel on their main contractors, the majority adopt a more intelligent approach and sift out what must be included (for example, restrictions on the manner in which the works are carried out, specific obligations in relation to procuring collateral warranties and so on). Hence, the schedule of amendments to standard forms. Even where wholesale “step down” has been attempted, it is vehemently resisted by the contracting industry, and quite rightly so.
And yet at subcontract level, the industry seems to have accepted that wholesale “step down” is quite appropriate. All standard forms of subcontract include a broad obligation on the subcontractor to observe, perform and comply with the provisions of the main contract in so far as they relate to the subcontract works, usually supported by an indemnity if the subcontractor does not. This, in turn, necessitates copying the main contract, including the technical documentation, to the subcontractor. The weight of the paperwork becomes crushing.
In addition, subcontracts have conventionally contained other provisions seeking to ensure that there is no way at all that the main contractor can be left holding risks under the main contract that it has not passed on to the subcontractor.
At their most extreme, these are manifested in the now outlawed “pay when paid” clauses, which attempted to pass the risk of default by the employer in its basic obligation to pay on to the subcontractor. However, there are other examples: where a delay to the subcontract works entitles the main contractor to an extension of time and the architect/engineer has certified an extension under the main contract, the subcontractor’s entitlement cannot exceed the period certified by the architect; defects periods must coincide and so on.
On this approach of “stepping down”, all risk cascades down the chain until at some point commercial reality dawns again and the attempt to “step down” is replaced by simple stand-alone small works contracts and supply-only agreements.
But is there any reason why the approach taken both at the top and the bottom of the chain cannot be mirrored in the middle of it? All contracts will then stand alone and will not be dependent on the parties looking at other contracts in order to establish what the true obligations imposed on them are. Such self-contained contracts would be shorter, simpler and easier to administer. This approach would require each party in the chain to accept its proper share of risk and pass on only those risks that are appropriate. Is this not fair?
Ann Minogue is a partner in solicitor CMS Cameron McKenna.