Most of the subcontract disputes we see were decided months before anything went wrong on site, when a set of terms was accepted without a second look. The Construction Act protects subcontractors in important ways, but it leaves the parties free to agree much of the detail, and some contractors use that freedom hard. These are the clauses we check first.
Contents
Payment Periods and Pay Less Notice Periods
The Act requires every construction contract to have a due date and a final date for payment, but it does not say how far apart they must be. Long gaps between the valuation date, the due date and the final date can leave you financing the job for two or three months. Check the pay less notice period too. A long one gives the contractor more time to reduce your payment, and it is easy to miss.
Conditions on Applications
Some subcontracts say an application is only “valid” if it is sent on a particular day, in a particular format, with particular back up. Miss one and the contractor may say no payment cycle started. Make sure your team knows exactly what the contract requires, and diarise every date.
Set Off Clauses
Watch for clauses that let the contractor set off sums it says are due under other subcontracts, or from other companies in its group, or its own estimate of future costs that may never be incurred. Whatever the clause says, a deduction from a notified sum still needs a valid pay less notice, but a wide set off clause makes it far easier for the contractor to justify one.
Notices as Conditions
Look for notice provisions written as conditions, using words such as “subject to”, “provided that” and “failing which”. They are common for loss and expense and increasingly common for extensions of time. If the clause makes notice a condition, a late notice can cost you the claim. If you cannot negotiate it out, make sure your site team gives notice early and in the form required.
Time Obligations Tied to Someone Else’s Programme
A requirement to complete “in accordance with the contractor’s programme as revised from time to time” or “to suit the progress of the main works” leaves you with no fixed period to measure delay against. Agree a programme for your own works, with a start date and durations, and get it into the subcontract.
Acceleration at Your Cost
Best endeavours to prevent delay is normal. A clause that obliges you to add resources or work extra hours, at no extra cost, whenever the contractor asks is not. Strike it out or limit it to delay you caused.
Procedures Before Adjudication, and Who Pays for It
You have a statutory right to adjudicate at any time. Clauses that require months of negotiation first, or make the party who starts an adjudication pay everyone’s costs, cut across that right. Many are ineffective, but it is better not to sign them than to argue about them later.
Letters of Intent
A letter of intent is not a full contract. Check what work it covers, any cap on what you will be paid and how long it lasts, and press for the full subcontract before the cap is reached. Starting work, design or orders can also amount to accepting the contractor’s terms, so read them before you start.
What to Do
Most contractors will agree reasonable changes when they are asked at tender or order stage, and far fewer will agree them once you are on site. Our fixed price payment terms review checks the payment, notice and set off terms of a subcontract before you sign, and tells you which changes to ask for.
About the Author
Benjamin Bjork
Benjamin is a quantity surveyor with a master’s degree in construction law and arbitration, awarded with distinction, and is a Fellow of the Chartered Institute of Arbitrators. He founded Mill Court in 2009 and works on claims, adjudications and contract management on power, energy, infrastructure and building projects.
