When signing a contract – What should subcontractors be wary of?
There are a number of clauses or elements of a contract that subcontractors need to be specifically aware of.
- Claims and Compensation Events and Time bar clauses
In NEC there is only a single mechanism that subcontractors will be paid additional monies :- and that is through notification of a compensation event (CEN). The fact that an event has been discussed and even minuted in an early warning meeting or subcontractor has received an Instruction (PMI) does not mean that the subcontractor will receive entitlement in time or money. A compensation event must be notified; and beware the timebar clauses in NEC4 61.3 “if the Contractor does not notify a compensation event within 7 weeks” ………. they may lose this entitlement. Furthermore clause 61.3 is often the subject of a z clause and is even more onerous than the standard 7 weeks, and 4 weeks or even less and it is not unheard of to have only 7 days;- so don’t take a holiday!
- What period of time is a Contractor/ Subcontractor liable for?
Most construction contracts contain clauses regarding defects liability period, which typically run from 12-24 months after completion. The contractor or subcontractor is required to attend to defects which arise during that period.
The subcontractor is not released from liability entirely however as within UK law the Limitation Act 1980 applies, and so a negligence claim for example in tort or contract can be brought up to 6 years for a simple contract or 12 years for a deed and the majority of UK construction contracts are written as deeds. (The difference being that a deed requires two directors’ signatures.) The date of accrual by which it is known is the date the act or omission occurred and that is when the clock starts. In addition the Latent Damage Act 1986 the time limit is subject to an overall limit of 15 years. (Latent defect is one which is unknown rather than a patent defect which is identified during the works or identified during the defects liability period.) Shorter limitation periods can be agreed between the parties and included in the contract as an express term if the parties agree.
- Acceleration
Within NEC3 and NEC4 there is provision for the acceleration of the works. However acceleration cannot be instructed, merely a quotation for acceleration to be submitted and if this is agreed it can be implemented. So subcontractors need to be wary of the inclusion of Z clauses which require compliance to accelerate following instructions. Evaluation of acceleration needs to include additional costs due to overtime, losses due to inefficiencies, higher rates for additional labour and potential additional mobilisation or de.mob. costs.
- Indemnities and Liability
Beware any clause which includes terms such as “shall be liable and indemnify …against liability whatsoever” Or “ indirect, consequential of nay default of the Sub-Contractor”. This widens the liability to cover indirect or consequential loses. To limit this look at the Limitation of Liability clauses, which are to be found in NEC4 in X18, normally inserted as percentage of the contract sum.
- Completion
It is common for Main Contractors to link the obligations from the Main Contract to the contract formed with the subcontractor. With regard to completion, in the event of breach due to subcontract work being incomplete then any delay damages being incurred by the Main Contractor are passed on. Hence the clause the inclusion of the clause “subcontract works will not be considered to be complete until the main contract works have been accepted by the client”. This clause means that groundworks, or foundation work undertaken early in the project may not be complete until many months after actual completion of the subcontractor’s work on the site. This then leads to potential liability of loss or damage to the subcontract works after the works are actually complete, and lack of payment due on completion until all other works are also complete.