A new standard form of subcontract for use on government work has been condemned by the Constructors Liaison Group as “utterly flawed” and “dreadful”. Do any of its attacks stand up to examination?
The government has recently published GC/Works Subcontract, new standard form for use with the GC/Works documentation. It did so both to meet Sir Michael Latham’s aspirations for integrated suites of documentation and to meet the demands of an industry anxious to avoid bespoke amendments. The form was produced in conjunction with the Construction Confederation which jointly determined policy and content with the representatives of the Property Advisers to the Civil Estate.

It has been attacked in very emotive terms by the Constructors Liaison Group, which has described it as “utterly and totally flawed”, “a dreadful document” and “ill conceived”. What has provoked this response? And is it justified?

The government has, of course, been criticised for maintaining its own suite of documentation at all. When considering the form of subcontract it would use, it debated whether to produce a new form adopting the style and terminology of the GC/Works suite of documentation. Anxious to avoid accusations of proliferating the number of forms of subcontract available – a course which itself would undoubtedly have elicited outraged comment from the CLG – it elected to work from the standard form of subcontract used and accepted by most parts of the construction industry – DOM/1, itself published by the Construction Confederation.

The amendments made to DOM/1 were essentially to step down provisions from the GC/Works suite. Part of this stepping-down exercise was obviously designed to ensure that there were no gaps between liabilities imposed on the main contractor and those imposed on the subcontractor. It was also concerned with the stepping-down of some clauses appearing in the GC/Works suite so that the obligations of the subcontractor were comprehensively defined by the subcontract itself. The CLG has long complained about the use of general incorporation clauses to achieve this objective, and this is what PACE was anxious to avoid.

The CLG has raised certain specific criticisms which are mentioned below, but the thrust of its argument seems to be that DOM/1 is not an acceptable starting point. Having lobbied (quite rightly) long and hard against main contractors’ own heavily one-sided terms and conditions of subcontract, it appears that the CLG is now turning its back on the only standard form of subcontract in widespread use. What does the CLG want contractors to use pending the ever-receding day when the industry achieves Sir John Egan’s goal of dispensing with formal contracts? What practical suggestions does it have to make? Is it always to be at war with the rest of the industry?

The CLG has attempted to support its attacks by far-reaching assertions about flaws in the drafting of GC/Works subcontract.

  • The subcontract does not impose “pay if paid” conditions
  • Rejection of the subcontract implies rejection of DOM/1
  • The subcontract does not contravene the Construction Act

But do these stand up to close examination?

The first suggestion is that the subcontract accepts “pay if paid” conditions. This is not correct. The printed text contains no such provision. The guidance note points out that section 113.1 – which generally outlaws “pay if paid” conditions – does permit them in the case of insolvency. The government, of course, as employer cannot become insolvent, but a private-sector employer using the GC/Works suite of documentation could. Hence the suggested drafting in the guidance note which can be used if the parties to the subcontract agree.

Second, it is suggested that a condition that says that subcontractors will not be paid unless they have complied with their contractual obligation to provide a warranty/guarantee to the employer has been held by the Court of Appeal to be “unworkable”. If the CLG is referring to the Koch Hightex litigation with the New Millennium Experience Company, then the Court of Appeal actually decided quite the opposite. The clause was upheld. The clause will not in any event apply if the documents are provided in accordance with the subcontractor’s contractual obligation.

Finally, and perhaps most outrageously, it is suggested that the GC/Works subcontract contravenes the Construction Act by making final payment conditional on certain conditions under the main contract. Rudi Klein’s position on the interpretation of section 113.1, which explicitly outlaws only provisions making payment conditional “on a payer receiving payment …” has previously been aired in Building [12 May]. The CLG’s view appears to be that the words “receiving payment” actually mean satisfaction of any condition that triggers payment under the main contract. For obvious reasons, this is not a view widely shared by others.