This month’s contract clinic question comes from a subcontractor with a familiar frustration – not being paid. Peter Vinden looks at the options.
The question
We are a subcontractor working on an office redevelopment in Manchester city centre. The main contractor regularly withholds sums we do not feel are fairly withheld and has now failed to pay our final invoice for four months. Is there anything we can do to tackle this – and, if so, what?
The answer
This isn’t the first, and certainly won’t be the last, time I’ve heard about a subcontractor protesting about being treated unfairly by a main contractor client. When I was taking my first steps in the industry I’ve grown to be so passionate about, things were a lot more difficult for subcontractors. That may sound hard to believe, but it’s true.
Fast forward to the present, and the payment culture across the construction industry has improved considerably. This is thanks, in the main, to changes in legislation.
Successive governments have enacted a range of statutory rights to protect subcontractors, including:
- Banning ‘pay when paid’ clauses in construction contracts.
- Introducing the right to receive interest on late payments, with a default interest rate set at 8% above the Bank of England base rate.
- Introducing the right to suspend work on site when due payments are not received on time and allowing that right to continue until payment is received.
- Introducing the right to receive an extension of time to the project deadline and reimbursement for costs incurred during a lawful work suspension, including costs associated with demobilising and remobilising from the site.
- Introducing the right to a swift 28-day adjudication process, with the adjudicator’s fees being paid by the main contractor when the contractor is found to have acted unlawfully.
Our courts consistently enforce these measures and attempts to bypass them are simply not tolerated.
The legal landscape for subcontractor payment is evolving, and a further development that will strengthen their rights may be on the horizon.
Court ruling on termination
Later this year, the Supreme Court will rule on a specific legal issue in a case involving Providence Building Services and Hexagon Housing Association.
The case is of great significance to our industry. The Supreme Court will decide whether a contractor can legally terminate a JCT 2016 D&B contract in circumstances where an employer has repeatedly failed to make payments on time.
Most importantly, it will clarify whether the right to terminate can be exercised immediately, without having to give an employer another warning and opportunity to make payment. This is the proposition advanced by Providence.
There are compelling arguments on both sides of this issue, making the Supreme Court’s decision one that is highly anticipated by our industry. If a ruling is given in favour of Providence it will establish a new precedent providing subcontractors with a yet further powerful tool to protect their interests. Watch this space.
Assert your rights
I understand that many subcontractors will be fearful of asserting their rights and upsetting clients, but if you are not prepared to stand your ground you better believe there are contractors that will take advantage of your position.
But, a note of caution: some commentators argue that decisions taken in the recent government budget may cause a reduction in investment in new buildings. Combined with other factors and global financial instability, then there may be a risk of people chasing a diminishing pool of funds.
The construction industry is likely to face increasing challenges in the coming year as belts are tightened and funds become even more scarce. If subcontractors fail to assert their legal rights to receive timely payments, delays and unfair practices could become even more widespread. If you are in any doubt about your rights, seek appropriate advice.
Peter Vinden is non-executive director of Decipher, a DeSimone Company.
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