I am sure it will come as no surprise to specialist contractors that our recent payment survey – where we canvassed 59 subcontractors and specialists we have worked with – revealed that unfair payment practices are still rife in UK construction.
In fact, the survey suggested that three in every five subcontractors were underpaid by main contractors, even when they had delivered the perfect job.
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Whilst this payment practice is fundamentally wrong, the survey also flagged up another major concern that can leave subcontractors open to abuse: a basic lack of understanding of their legal rights when it comes to payment.
The survey found that almost 10% of subcontractors think main contractors can just call and refuse payment, without giving any justification or following any sort of legal procedure.
But that’s just not true. In fact, whenever a main contractor withholds funds they must, by law, issue you with the appropriate notice in writing.
If it is in relation to a construction contract coming into force before October 2011, the main contractor must send the subcontractor a written withholding notice. While they do not have to give reasons for withholding the amount specified, you can still challenge the validity of the notice and take the matter to adjudication, if necessary.
And for construction contracts entered into after October 2011, the new Construction Act applies, which places stricter requirements on main contractors wanting to withhold funds.
Under this Act, main contractors are required by law to issue subcontractors with what is now called a “pay less” notice. This is similar to the former withholding notice. However, it must be issued within a specified time frame allowed in the contract, set out detailed reasons as to why the amounts are being withheld and clearly show the basis of all calculations used. Furthermore, the value of the work must be ascertained at the date the pay less notice was given.
Our survey found that 40% of subcontractors only challenge one in every 10 contracts they sign up to. What is worse, one in 20 subcontractors failed to challenge the terms of a single contract they signed up to last year.
If the main contractor doesn’t comply with the correct formalities with withholding or pay less notices, the subcontractor is put in a very strong position to recover whatever amount is disputed.
That said, getting paid what you think you are owed can very much depend on the contract terms you agreed to in the first place, which brings us to another risk area for subcontractors.
The fact that many subcontractors are not aware of their rights when it comes to payment highlights just how little they know about the legal contracts they are signing up to in the first place.
In fact, our survey found that 40% of subcontractors only challenge one in every 10 contracts they sign up to. What is worse, one in 20 subcontractors failed to challenge the terms of a single contract they signed up to last year.
I cannot emphasise enough to subcontractors the risks they may be exposing themselves to by not taking the time to read or challenge the terms in their subcontractor agreements.
So often I come across clients wanting to take a main contractor to adjudication, but when you actually look at what the specialist contractor has signed up to, they haven’t got a case. That is because, in many of these instances, they have literally signed their rights away by signing up to the terms.
For example, one of our clients agreed to the following term: “The Contractor may terminate the subcontractor’s employment under this subcontract forthwith upon notice in writing to the subcontractor.”
Now you may think this is a low risk clause. After all, you would assume your main contractor would only terminate the contract if you were at fault – but there is actually nothing in the clause to say that must be the case.
In fact, if you sign up to this clause you sign out of any rights you have under the Construction Act. So if the main contractor then decides to terminate your work for any reason, they can seize your equipment and materials on site to finish the job. Worse still, they can also employ another subcontractor to do the job and charge you the cost for doing so.
All of this can be avoided by asking a dispute avoidance and resolution expert to look over your contract before signing up to it.
Peter English FRICS FCIArb is managing director and founder of construction law specialist PJE International. www.pjeinternational.com Tel: 0116 288 2003
