Recently we were called in to assist a Contractor with a dispute on a refurbishment project in Liverpool City Centre. The dispute concerned faulty workmanship carried out by one of their subcontractors, which was in need of replacing. The faulty workmanship came to light following completion of the Subcontractor’s works and at the time of coming to light was two weeks away from Practical Completion.
The Contractor had received a final account application for payment from the Subcontractor, which they did not want to pay until the faulty work had been put right by the Subcontractor. They contacted Drake QS for immediate assistance.
The following conversation ensued: –
Contractor: “We potentially have a major issue with a Subcontractor on a project for our most important client. There is an issue with their workmanship, but they don’t agree and they want paying. We can withhold the payment from them right? Do we need to write them a letter or send them an email?”
Drake QS: “Yes you do, but its effectiveness depends on the timescales for payment within the contract”
Contractor: “What do you mean?”
Drake QS: “Well you may have missed the opportunity to issue them with a valid ‘Pay-Less Notice’ because the date for doing so could have passed. Could you provide us with a copy of the contract between you and your subcontractor so we can check it for you?”
Contractor: “The Contract”?
Drake QS: “Yes; we need to see the order that you gave to the Subcontractor with the terms and conditions of the agreement between you and them, we can then advise you correctly”
Contractor: “oh right; okay we will send it across”
The Contractor duly emailed over the said document, which read: –
“Please carryout the works as per your quotation for the sum of £ xx,xxx.xx”
Due diligence in construction contracts
The alarm bells started ringing. This is a big No-No…. Contractors and Subcontractors, you should never do this, you should never place an order for works, which states, “Please carryout the works as per your quotation”. If you do this you are potentially incorporating their terms & conditions into the agreement between you and them and you could be legally bound to them.
In this instance, there were no other terms attached to the order nor was there any reference to any other terms, which applied. It simply stated “Please carryout the works as per your quotation for the sum of £ xx,xxx.xx”
Drake QS then requested a copy of the subcontractor’s quotation.
We were right to be concerned, because upon receipt the quotation we found a set of terms & conditions that were extremely favorable to the Subcontractor, so much so that they bordered on breaching the Unfair Contract Terms Act 1977.
These onerous Terms & Conditions were the basis of the agreement between the Contractor and the Subcontractor and when we explained this to the Contractor they did not know the potential ramifications of placing the order with the Subcontractor in the manner they had done.
Fortunately for the Contractor, after a review of the payment section of the Terms & Conditions and considering these against the date of the Subcontractor’s application, there was just enough time available to serve a valid ‘Pay-Less Notice’ (which we assisted them with drafting) in accordance with the Local Democracy, Economic Development and Construction Act 2009 (LDEDC Act 2009), also known as the Construction Act.
Successful dispute resolution
From thereon in Drake QS assisted them with successfully resolving the dispute with the Subcontractor.
The biggest lesson learned by the Contractor was to not place orders with Subcontractors in the manner they had done.
For the Contractor, just the thought of the adhering to the Subcontractor’s Terms & Conditions was a big enough wake up call and made them change their Subcontract Ordering process. Drake QS assisted them with changing all of their processes, we provided them with a set of robust Terms and Conditions and a series of document templates, which they now complete when placing Subcontract Orders.
This new process will help them to avoid possible contractual nightmares in the future, such as the one they almost encountered on this particular project.
If you have any similar issues or would like to talk to us about improving your Subcontract Ordering process, please get in touch with us via our Contact Page.
– See more at: http://www.drakeqs.co.uk/blog/dispute-resolution-in-construction-getting-it-right-first-time./#sthash.qxIopz8V.dpuf