Ann Minogue's column on the new standard form of subcontract for use on government work – the GC/Works Subcontract – challenged the Constructors Liaison Group to a tempered debate. It begins here.
Ann Minogue devoted her last column to attacking the Constructors Liaison Group's position on the new GC/Works Subcontract for use with the GC/Works family of contracts. She challenges the CLG to a "real debate". I shall devote this column to starting that debate – but avoiding the hyperbole that permeated Ann's own column.

Let's deal in turn with Ann's points:

  • "It was right to base the GC/Works Subcontract on DOM/1."
Answer: DOM/1 reflects an outdated culture of adversarial contracting. It has no place in the post-Egan world of integrated supply chains and relationships founded upon trust and mutuality. Why should the government – as a best practice client – breathe life into this particular contractual dinosaur through the new GC/Works Subcontract? In any event, Ann may not recall that the CLG withdrew its approval of DOM/1 in 1998 when its owners – the Construction Confederation – decided to remove most of the valuable set-off protection.

"Contracts should address the risk issue in the construction industry from a fresh perspective. Contracts writers must realise that it is impossible to manage today's construction using yesterday's contracts." (Determining the Impact of Various Construction Contract Types and Clauses on Project Performance, University of Illinois Research Project 1986.)

  • "The GC/Works Subcontract was issued to comply with Latham's aspirations for integrated suites of documentation and to avoid bespoke arrangements."
Answer: Move into the real world, Ann. DOM/1 and its predecessor have been around for 30 years. Has it reduced the incidence of bespoke arrangements? No. Will the GC/Works Subcontract make a difference? No. There is no requirement that main contractors must use it unamended.

Ann refers to Latham's aspirations. He recommended the outlawing of cross-contract set-off; the owners of this document have seen fit to ignore Latham and include cross-contract set-off.

But there remains a fundamental objection which is that this new document was drafted on the principle of being "back to back" with the main contract. So, is each subcontractor expected to carry the same risks as the main contractor? I thought the government's (and Latham's) aim was to allocate risks to the party best able to manage them.

So, here we have a government as a best practice client – legitimising bad practice (pay if paid). Permit me to be emotional here, Ann. This is outrageous

  • "The documentation does not provide for 'pay if paid' arrangements."
Answer: As Ann admits, the guidance note gives helpful advice to main contractors who do not wish to pay their subcontractors if a private sector employer becomes insolvent. So, here we have a government – as a best practice client – legitimising bad practice (pay if paid). Permit me to be emotional here, Ann. This is outrageous. It adversely impacts on small and medium-sized businesses that the government is committed to help. The subcontractor is expected to run the risk of insolvency of both main contractor and employer. (In the public sector, it only runs the risk of main contractor insolvency, but the main contractor does not face such risk from its employer.)
  • "The condition in the subcontract which makes the provision of warranties/ guaranties a condition precedent to payment fully accords with the law."
Answer: I would expect to find this nonsense in some of the worst bespoke contracts. Has Ann read the judgments in the Koch Hightex litigation she refers to? I quote from Lord Justice Chadwick: "… the client and the trade contractor cannot have intended that the effect of their agreement should be that the trade contractor should be entitled to carry on the works without being paid for some indefinite period until it chose to provide the guarantee and performance bond. Such an arrangement could properly be described, in my view, as commercial nonsense."
  • "The suggestion that the subcontract flouts the Construction Act is 'outrageous'."
Answer: It might be outrageous, but it is true. The subcontract does not have an adequate payment mechanism in relation to final payment, entitlement to which is dependent on a mechanism under another contract – the main contract. Consequently, the relevant payment provisions in the Scheme for Construction Contracts will apply.

  • "What else is there to use if DOM/1 and the GC/Works Subcontract is not acceptable?"
Answer: If the owners of the GC/Works Subcontract had taken the trouble to talk to the CLG before initial drafting, these problems could have been avoided. The outcry against this document would not have been so vociferous if it were not for the fact that it has the imprimatur of government.

As I have already said, main contractors can adopt their own bespoke conditions which compounds the problems. The culprits in this saga are the owners of this document – Property Advisers to the Civil Estate and the Construction Confederation. I don't blame the confederation as much as I blame PACE – it should know better.