The release of retention monies is – ultimately – dependent on the issue of a certificate of making good defects. If this is delayed, so is the money. The delay in issuing the certificate may have nothing to do with the quality of the subcontractor’s work but rather, with shortcomings in the performance of the main contractor or other subcontractors. Alternatively, the architect may have been dilatory in issuing the CMGD.
Whatever the reason, the innocent subcontractor is often left waiting for its money long after its work has been completed. Apart from applying pressure to the main contractor to resolve those matters that are holding up the issue of the CMGD, there is little it can do.
Well, not quite. A judgment last year of His Honour Judge Bowsher in Ballast Wiltshier vs Thomas Barnes offers a possible way out of the impasse.
Ballast Wiltshire had entered into a main contract to carry out certain works on a project known as The Arcades at Ashton under Lyne, Greater Manchester. Thomas Barnes was engaged as the subcontractor for the reinforced concrete work on the project. The work – which was carried out in three phases – was completed in August 1995. A CMGD was issued under the main contract on 16 June 1997.
After completing its works, Thomas Barnes submitted a number of claims to arbitration. The major claim was for the total remeasured value of the works (expressed in gross figures), including the outstanding retention monies of £31 320.20. Ballast Wiltshire submitted the inevitable counterclaim to diminish or nullify the claims from Thomas Barnes.
In a second interim award, dated 30 June 1997, the arbitrator decided that Thomas Barnes was entitled to the release of its outstanding retentions. This constituted one of the grounds of appeal brought by Ballast Wiltshire, since the money was not due to be paid until shortly after the award.
- Retentions are discretionary; the money belongs to the subcontractor
- Retentions should be kept in a separate account
- The non-issue of a CMGD is not grounds for withholding money
The judge considered the retention provisions in DOM/1: “The amount of the first and each interim payment to the subcontractor shall be the gross valuation … less an amount equal to any amount which may be deducted and retained as retention by the contractor in respect of the subcontract works in accordance with clause 21.5 …” Clause 21.5 provides: “The retention which may be deducted and retained by the contractor shall be ascertained as follows …” These italics were the judge’s. The point was that Thomas Barnes had a right to the gross sum, but the main contractor’s right to deduct retentions from it was only discretionary. The retained cash remained the subcontractor’s.
The judge continued: “If withheld, it is withheld as security for any set-off which may be raised, but the subcontractor has a cause of action for the whole gross sum and he is perfectly entitled to claim the gross sum without reference to retention money, leaving it to the paying party to raise the discretionary right to make a retention if he wishes. This analysis is reflected in the language commonly used, and used by the parties in this case, referring to the ‘release’ of retention monies.” Therefore, the arbitrator was entitled to award the gross figure, as the main contractor’s entitlement to make the deduction had expired before the award. The arbitrator had jurisdiction to award the retentions if, as in this case, the amount of and liability to pay the outstanding retention was not disputed by Ballast Wiltshire. In any event, the arbitrator had – on the evidence – good reason to believe that the CMGD would be issued before his award.
The upshot of all this is that the subcontractor can obtain release of his retentions before the issue of a CMGD, provided his work conforms to the contract and there are no extant set-offs.
Let’s try and take this a little bit further. If the purpose for which retention has been deducted (security for the subcontractor’s performance) no longer exists, the discretion to retain it no longer applies.
If this is the situation, the money should go back to the subcontractor. In these circumstances, the law implies that the money is held on trust – a “resulting trust”. Until they are paid they should be kept in a separate bank account.
What happens if the CMGD has not been issued, because of default on the part of the main contractor and/or other subcontractors? In such circumstances the main contractor cannot take advantage of his own default or of the defaults of others for whom he is responsible to delay payment. This was not the intention behind clause 21.5 in DOM/1.
Rudi Klein is a barrister and chief executive of the Specialist Engineering Contractors Group.