The problems between main and
sub-contractors were one of the areas to benefit most from Part II of
the UK Government’s Housing Grants, Construction and Regeneration
Act 1996 (see Section 1.6). The introduction of adjudication under
that act to deal with disputes has at least allowed sub-contractors
to press their claims to an earlier conclusion, and to challenge any
withholding of payment by the contractor.
The Act requires payment terms to be
stated and regular payments made. It prohibits ‘pay when paid’
clauses, and requires the contractor to issue a detailed ‘withholding
notice’ if he seeks to hold back payment. These measures have eased
the cash flow problems of sub-contractors.
Also most standard forms of
sub-contract now contain provision for payment of interest on delayed
payments, but this may not be very effective because a sub-contractor
may not claim interest for fear the contractor might not as a
consequence give him any further work.
The Civil Engineering Contractors
Association (CECA) has issued a Form of Sub-contract ‘for use in
conjunction with the ICE conditions of contract.’ Contractors are,
of course, not obliged to use this form and many use one of their own
devising or modify the standard form.
The provisions of the CECA sub-contract
illustrate the many matters which such a sub-contract has to cover
and the difficulty of trying to provide rights to the sub-contractor
without putting the main contractor at risk under his contract.
Provisions of the CECA sub-contract,
apart from defining the work, timing and duration of the
sub-contractor’s input, require the sub-contract to set out the
division of risks as between contractor and sub-contractor.
It defines procedures and methods of
valuing variations made by the engineer and confirmed by the
contractor, or made by the contractor; and sets out procedures for
notification and payment for ‘unforeseen conditions’ or other
claim matters. It also stipulates requirements for insurances and so
on.
Many of the provisions are similar in
terms to the ICE conditions applying to the contractor, and are thus
passed on to the sub-contractor in respect of his work. The
subcontractor is ‘deemed to have full knowledge of the provisions
of the main contract’ and the contractor must give him a copy of it
(without the prices) if the sub-contractor requests it.
Of particular importance is Clause 3 of
the CECA sub-contract which requires the sub-contractor to carry out
his work so as to avoid causing a breach of the main contract by the
contractor. He has to indemnify the contractor ‘against all claims,
demands, proceedings, damages, costs and expenses made against or
incurred by the contractor by reason of any breach by the
subcontractor of the sub-contract.’
But a sub-contractor undertaking a
small value contract may find it impossible to accept this clause. If
he fails to complete his work on time and this could possibly cause a
delay to the whole project, he might be liable to pay many thousands
of pounds to the contractor – far in excess of the value of his
sub-contract.
A further problem for the engineer is
that, if a dispute arises between the contractor and his
sub-contractor as to who is responsible for some defective work, the
defect can remain uncorrected until the dispute is resolved. If a
defect is found after the sub-contractor has left site and he is
believed or known to be responsible for it, the contractor may not be
able to get the sub-contractor back to site to remedy the defect, or
to pay for its repair.
To guard against this, the contractor
may therefore hold back full payment to the sub-contractor for many
months until a certificate of completion for the whole works is
issued. This will cause another dispute between contractor and
sub-contractor.
The development of sub-contracting in
civil engineering has therefore brought both advantages and
disadvantages. However, problems rarely arise if the contractor can
use sub-contractors he has worked with before whose work has proved
satisfactory and he treats them fairly.
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