Recent measures to alleviate sub-contract disputes

The problems between main and sub-contractors were one of the areas to benefit most from Part II of the UK Governments Housing Grants, Construction  and Regeneration Act 1996 (see Section 1.6). The introduction of adjudication under that act to deal with disputes has at least allowed sub-contractors to press their claims to an earlier conclusion, and to challenge any withholding of payment by the contractor.
The Act requires payment terms to be stated and regular payments made.
It prohibits pay when paid clauses, and requires the contractor to issue a detailed withholding notice if he seeks to hold back payment. These measures have eased the cash flow problems of sub-contractors. Also most standard forms of sub-contract now contain provision for payment of interest on delayed payments, but this may not be very effective because a sub-contractor may not claim interest for fear the contractor might not as a consequence give him any further work.
The Civil Engineering Contractors Association (CECA) has issued a Form of Sub-contract for use in conjunction with the ICE conditions of contract. Contractors are, of course, not obliged to use this form and many use one of their own devising or modify the standard form. The provisions of the CECA sub-contract illustrate the many matters which such a sub-contract has to cover and the difficulty of trying to provide rights to the sub-contractor without putting the main contractor at risk under his contract.
Provisions of the CECA sub-contract, apart from defining the work, timing and duration of the sub-contractors input, require the sub-contract to set out the division of risks as between contractor and sub-contractor. It defines procedures and methods of valuing variations made by the engineer and confirmed by the contractor, or made by the contractor; and sets out procedures for notification and payment for unforeseen conditions or other claim matters.
It also stipulates requirements for insurances and so on. Many of the provisions are similar in terms to the ICE conditions applying to the contractor,  and are thus passed on to the sub-contractor in respect of his work. The subcontractor is deemed to have full knowledge of the provisions of the main contract and the contractor must give him a copy of it (without the prices) if the sub-contractor requests it.

Of particular importance is Clause 3 of the CECA sub-contract which requires the sub-contractor to carry out his work so as to avoid causing a breach of the main contract by the contractor. He has to indemnify the contractor against all claims, demands, proceedings, damages, costs and expenses made against or incurred by the contractor by reason of any breach by the subcontractor of the sub-contract. But a sub-contractor undertaking a small value contract may find it impossible to accept this clause. If he fails to complete his work on time and this could possibly cause a delay to the whole project, he might be liable to pay many thousands of pounds to the contractor far in excess of the value of his sub-contract.
A further problem for the engineer is that, if a dispute arises between the contractor and his sub-contractor as to who is responsible for some defective work, the defect can remain uncorrected until the dispute is resolved. If a defect is found after the sub-contractor has left site and he is believed or known to be responsible for it, the contractor may not be able to get the sub-contractor back to site to remedy the defect, or to pay for its repair. To guard against this, the contractor may therefore hold back full payment to the sub-contractor for many months until a certificate of completion for the whole works is issued.
This will cause another dispute between contractor and sub-contractor.
The development of sub-contracting in civil engineering has therefore brought both advantages and disadvantages. However, problems rarely arise if the contractor can use sub-contractors he has worked with before whose work has proved satisfactory and he treats them fairly.

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