Subcontractors: risk dustbins

Please, readers, tell me if the industry is becoming a better place in which to work. Has contractual conflict become a dim and distant memory? Or, at least, has it reduced significantly? Recently, I was sent a copy of a subcontract agreement. This one is being touted around by Ballast Nedam, but the “nasties it contains is far from unique to that contractor. Clearly, Latham and Egan have not penetrated the defences of many main contractors. Even with the protection afforded by the Construction Act, there is no stopping a determined party from drafting a contract that imposes every conceivable risk upon the other – and many have.

The following, are some of the more outrageous contents of the Ballast Nedam document.

Extensions of time The main contractor may grant extensions of time to the subcontractor where it is delayed by causes that result in the granting of an extension of time on the main contract. This appears to be the limit of the subcontractor’s entitlement – there is nothing about the subcontractor receiving an extension of time where the main contractor has been responsible for delay to the subcontract works.

Salt is now rubbed into the wound. If the subcontractor delays the main contractor in any way, the main contractor shall set off his “bona fide estimate” of the loss or damage suffered. Such an estimate is to be binding and conclusive upon the subcontractor pending the final determination or agreement as to the amount of loss or damage – whenever that might be.

The aim is to prevent the subcontractor from going to adjudication if it disagrees with the estimate. However, although the Scheme for Construction Contracts excludes matters expressed to be final and conclusive from the adjudicator’s jurisdiction, the act (the primary legislation) anticipates in section 111 (4) that set-off disputes are referable to adjudication.

Liability for loss or damage The subcontractor is responsible for “every description of loss of or damage to” all work, materials and/or goods on site for incorporation into the subcontract works until practical completion of the main contract. This will apply, of course, where the subcontractor has left the site and therefore, is not in a position to safeguard its work.

Such liability does not arise, however, where the loss or damage is being caused by he “negligence, omission or default” of the main contractor, its servants or agents. In practice, the subcontractor is likely to be saddled with responsibility for all loss or damage since it could be extremely difficult to prove that it arose out of the negligence of the main contractor.

The other exception is where the loss or damage was caused by “specified perils” such as fire, storm or explosion. But, the subcontractor is required to bear the excess under any insurance policy arranged by the main contractor or employer where such perils have arisen out of the negligence or default of the subcontractor.

Worse, the main contractor is to have free use of the subcontractor’s equipment, materials and property on site without responsibility for wear and tear

Payment. As is now fairly common, there is a pay-when-certified provision. This will likely fall foul of the act, as it does not amount to an “adequate mechanism”.

Cross-contract set-off is included and there is provision for discounts, which Latham recommended should be abolished and, in fact, is removed from the JCT’s forms.

The main contractor is entitled to deduct retention from interim payments, but nothing is said about when the retention monies are to be repaid. Worse, no payment is to be made until the subcontractor has executed the subcontract and no payment shall be made until the main contractor has evidence of the subcontractor’s compliance with his insurance obligations. These provisions are fairly popular. Following the recent court of appeal decision in Koch Hightex vs New Millennium Experience Company, they are unlikely to be of any effect.

Determination of subcontractors’ employment This bit is interesting. The main contractor can “summarily” determine the subcontractor’s employment for almost anything. The catch-all clause is that within three days of a written notice, the subcontractor’s employment can be ended for failure to comply with any of the obligations in the subcontract.

To make things worse, the main contractor is to have free use of the subcontractor’s equipment, materials and property on site without responsibility for wear and tear. The main contractor has no liability for any loss or expense suffered by the subcontractor, nor any outstanding payments when the subcontract is determined following the determination of the main contract. Presumably this will still apply if the determination of the main contract has been brought about by a default by the main contractor.

Co-ordination, programming. It seems that this particular main contractor does not bother about managing projects. The subcontractor is to programme and arrange his subcontract works so that they integrate fully with those of others – although the subcontractor is expected to comply with the main contractor’s management procedures, whatever they might be.