Contractors could be forced to provide proof that they can pay their subcontractors or risk them walking off site, if proposed changes to the Construction Act become law
The amendments, tabled by Labour peer Lord O’Neill, president of the Specialist Engineering Contractors’ (SEC) Group, would allow subcontractors to demand a guarantee, after they have entered into a contract, of payment in the event that their employer becomes insolvent. If the employer fails to provide “adequate security”, through a bank bond or parent company guarantee, the subcontractor would be entitled to suspend the contract.
Rudi Klein, the SEC Group’s chief executive, said the changes were crucial in the current downturn. “Subcontractors have always had to provide employers with protection,” he said. “It’s reasonable that they should also have a guarantee of payment.”
He said the amendments were intended to “deal with those who perpetually abuse the process”.
However, the bid is likely to set specialists at loggerheads with main contractors. Graham Watts, chief executive of the Construction Industry Council, said he was disappointed the SEC Group had proposed the changes.
“It is a shame. If each body lobbies independently to suit their members, we will never make progress as a united industry.” He said there was not a “cat’s chance” the government would accept the changes.
Rupert Choat, a partner at law firm Cameron McKenna, said that having to obtain security would place an extra financial and administrative burden on employers. “This doesn’t exclude subcontractors, as anyone who hires another specialist below them will be affected,” he said.