Construction Act compliance
A self-serving and worrying new provision has been added, requiring the subcontractor to acknowledge that the subcontract complies with the Construction Act "in every respect". This muzzling device would prevent the subcontractor from arguing later that the amended conditions did not in fact comply fully with the Act. In reality, either the contract conditions comply with the Act or they do not, as a matter of legal fact. Requiring the subcontractor to pretend that they do, come what may, seems unreasonable.
Suspending work
A new clause is added dealing with suspension of work, replacing the standard DOM/1 provision. In the event of payment default by Mowlem, the subcontractor must give "at least 21 days written notice" before becoming entitled – according to this clause – to suspend performance of any obligations. This contrasts significantly with the Act, which gives the subcontractor a (non-negotiable) statutory right to suspend performance in the event of payment default and requires the giving of "at least seven days notice".
The meaning of the Act seems to be that the subcontractor must give at least seven days notice, but can give more than seven days notice if it wishes. The Mowlem clause, in seeking to impose a mandatory 21 days notice period, appears to go beyond the Act, and in effect provides the main contractor with a licence to delay payment by up to three weeks. Presumably Mowlem does not intend to default by paying late – so why does it need this deviation from the Act?
Payment
The payment provisions have been rewritten to provide for payment by "instalments". The subcontractor must submit an application for payment in respect of each instalment, but the application will only be regarded as an "effective application for payment" where it is supported by all relevant documentary evidence and calculations, "sufficient in the contractor's absolute discretion to validate the accuracy of the amount claimed". The main contractor is thus given a remarkably absolute and seemingly unchallengeable power, based on a subjective opinion rather than on provable fact, to decide whether or not an application for payment is "effective" or not.
This translates into an absolute power, in effect, to decide whether or not to release payment to the subcontractor, as clause 21.2.3.2 provides unambiguously that: "For the avoidance of doubt an interim payment will not become due ... until the contractor has received an effective application for payment to which the interim payment relates." And an application will not become effective until the main contractor says so.
In the standard DOM/1 conditions the first payment becomes due "not later than" one month after the commencement of work on site. This allows flexibility but also provides some certainty – it must happen within one month. The Mowlem version contains a subtle twist – the first application for payment (which, all being well, will lead on to a "due" date) is to be made "not earlier than the end of the calendar month during which the subcontract works commence on site".
Why does Mowlem need an extra nine days of interest-free credit from subcontractors?
Within five days after the date when each payment is due, the main contractor will "send" (does that mean post?) a subcontract notice, indicating the amount that will be paid. The Act requires notice to be given not later than five days after the due date. Is it not the case that notice is not properly given until it is received? If so, a Mowlem notice merely posted five days after the due date might comply with this Mowlem clause, but will evidently not comply with the (non-negotiable) requirements of the Act.
Payments will be made within 26 days of the due date. This compares unfavourably with the 17 days in the standard DOM/1 conditions (and in the statutory fall-back provisions of the Scheme for Construction Contracts). Why does Mowlem need an extra nine days of interest-free credit from subcontractors in comparison with the reasonable benchmark of the standard form? The new clause 21.11 exploits the temporary loophole in section 113 of the Act permitting pay-if-paid devices to be used in certain circumstances, which have been widened to include the insolvency of any third party that owes money to Mowlem. And the pay-if-paid block will apply not just to regular payments due under the subcontract, but also to any amounts owed to the subcontractor by Mowlem "pursuant to an adjudicator's award". Mowlem appears to be seeking to be able to use the pay-if-paid loophole to avoid having to meet adjudicator's awards (possibly relating to disputed amounts arising before the insolvency).
Set-off
The main contractor is given an unreasonably broad right of set-off. Deductions can be made not only from amounts payable under this subcontract, but also from money owed under "any other contract, agreement or arrangement whether independent of, or connected to, the subcontract".
The amount that may be deducted includes not only any sum or sums that the subcontractor "is ... liable to pay to the contractor" but also any sum or sums that the subcontractor "may" (ie, possibly, speculatively, in the future?) "be liable to pay to the contractor". The Act requires written notice of intended set-off to be given before the relevant final date for payment. Here, Mowlem seeks to impose, somewhat cynically, the bare minimum notice period of "one day".
Adjudication
In the event that the subcontractor and main contractor cannot agree on the terms of appointment of the adjudicator, the main contractor is given a potentially self-serving power to "determine in its absolute discretion the terms of appointment".
The adjudicator is given the right to order that the winner's costs and expenses be borne by the loser. This contrasts with usual and standard procedures for adjudication – where each party would usually bear its own costs – and could increase significantly the financial risk facing a subcontractor contemplating recourse to adjudication.
Conclusion
Source
Construction Manager
