Civil Engineering Reference
In-Depth Information
financial trouble, can the employer pay the
sub-contractors directly?
UnderJCT98,thereusedtobeprovisionfortheemployertopaynominatedsub-contractors
directly in certain circumstances. There are no such provisions in SBC; indeed, there are no
nominated sub-contractors inSBC.EvenunderJCT98terms,thedirectpaymentprovisions
were hedged around by substantial conditions.
Under current traditional JCT contracts, there are no circumstances under which the em-
ployer should pay sub-contractors directly.
It is important to understand that the employer is in contract with the contractor, and
the contractor is in contract with the sub- contractors. There is no contractual relationship
between the sub-contractors and the employer unless some kind of direct warranty has been
employed,becauseclausesinthemainandinthesub-contractspreventtheContracts(Rights
of Third Parties) Act 1999 having any effect. Therefore, the position is that the contractor
hasundertakentotheemployer,forpayment,tocarryoutcertainWorks.PartoftheseWorks
has been sub-let to sub-contractors. That is to say, the sub-contractors have each undertaken
to the contractor to carry out their parts of the main contract Works in return for payment
from the contractor.
When a sub-contractor carries out work for the contractor, it is part of the main contract
Works, and the contractor is entitled to payment for it from the employer. If the contractor
does not pay the sub-contractor, the sub-contractor's redress is against the contractor. The
sub-contractor hasnovalidclaim directly againsttheemployer.Itisunfortunateforthesub-
contractor (indeed for all concerned) if the contractor gets into financial difficulties or even
goes into liquidation. That is the kind of thing that the sub-contractor, like any other busi-
ness, must try to guard against. Some employers believe that they are entitled to pay the
sub-contractor directly and then deduct the money paid from the contractor. That is wrong.
The employer who pays directly will be in breach of the insolvency rules by making the
sub-contractor into a preferential creditor. Even if that is not an issue, in the case of a con-
tractor who simply will not pay sub-contractors, the employer will undoubtedly be called
upon to pay the contractor for the work carried out as part of the main contract by the sub-
contractor.Theemployerwillhavenodefence.Itisnotanargumentfortheemployertosay,
'I will not pay you because you have not paid your sub-contractors'. The employer's duty
to pay the contractor under the main contract is not dependent on whether the contractor
has paid the sub-contractors. Indeed, the contractor's relationship with sub-contractors is no
businessoftheemployer'sexcepttotheextentthatthemaincontract requiresthecontractor
to include certain provisions in the sub-contract (for example, SBC clause 3.9.2).
