The Complex Terrain Of Subcontracting: Pitfalls And Protective Measures

In the world of construction and contracting, it is never simple nor a direct line to completion. Often organisations find themselves contracting under a barrage of chaotic contracts with perpetual pitfalls as a result of failing to put in place and apply protective measures. This is perhaps even more prevalent in the world of subcontracting, where resources are more limited, and access to advice not as easy or simply not sought.

What are the general issues with sub-contractors?

Sub-contractors often come from trade backgrounds, with limited legal expertise, and often operating without the benefit of in-house legal counsel.

As a result, smaller sub-contractors handling substantial contacts, often incur disproportionate liabilities. These risks can in turn increase the potential for insolvency, or perhaps simply a weakening of financial strength, leading to a reduced pool of reliable sub-contractors.

What are some of the potential issues and risks?

There may be skills gaps, unavailability of apprentices and/or trainees and these resource issues can result in an overall skills shortage, creating liability issues with the ever increasing complexity of subcontract specifications and work scope.

Bespoke forms of contracts, which may or may not be understood by main contractors, are pushed down to subcontractors, who often have insufficient resource to be able to review and understand these terms and conditions, even if they were afforded the proper time to do so. The pushing of risk down the contract chain does not mean it is allocated to the most appropriate party.

Forms of contract and their amendments are becoming ever more substantial and complex, and again, pushed down to subcontractors who are often the least able to protect themselves.

How can sub-contractors avoid risk?

To avoid risk, it is important to review contracts early and seek advice, whether from a solicitor or from a quantity surveyor experienced in contract drafting.

What are the key issues when sub-contracting?

• Payment issues

Notices: Parties are encouraged not to serve notices, or to accept late notices, and generally to work in ways that are not strictly in accordance with the Contract. That is all fine until an issue or dispute arises, and then complex issues such as "course of dealings" and "waiver" come into play. These are rarely fully understood and applied equally badly.

Non-payment: For a sub-contractor to suspend all obligations for non-payment, requirements under the contract must be followed. At a minimum this requires a 7 day written notice of an intention to suspend. However, amended contracts can make suspension of obligations more difficult, with the use of conditions precedent.

• Design responsibility and 'fit for purpose' obligations

These provisions can render the sub-contractor responsible for the completeness, accuracy and suitability of designs produced by others.

• 'Fit for purpose' v 'reasonable skill and care': It's important to note the distinct wording of a contract clause. Whilst 'fit for purpose' implies a sub-contractor guarantees their obligations will meet specific requirements, 'reasonable skill and care' requires a sub-contractor to perform their duties in a professional and competent manner.

• Notice Provisions

Amended contracts can require additional conditions to be satisfied before a sub-contractor is entitled to extra time or more money. These may be drafted as conditions precedent, or simply additional obligations in the details of what any notice must contain.

• Liquidated/Delay Damages

These provisions will render a party liable for delay damages, in the event that they are late and have not been granted extensions of time.

This topic was discussed in our webinar 'International Fraud – Beware!! with Keith E Oliver of Peters & Peters Solicitors LLP & Subcontracting under JCT and NEC with Sinéad Clarkson MRICS of PH Plasterers Limited' in November 2023. Click hereto view the webinar and presentation.

At Barton Legal, we specialise in all aspects of contentious and non-contentious construction law, navigating the complexities of contracts and proceedings. Whether in relation to projects in the UK, Europe, or further afield; we have a team dedicated to producing the best possible outcome for organisations of any size.

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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.