Civil Engineering Reference
In-Depth Information
Termination due to the contractor's insolvency is covered by clause 8.5 of SBC. The em-
ployermayterminateatanytimebywrittennotice.Theinterestingpointisthatunderclause
8.5.3.1, the provisions of the contract that require any further payment or release of reten-
tionceasetoapplyassoonasthecontractorbecomesinsolvent,evenifnowrittennoticehas
been given by the employer.
Thatmeansthatalthoughtheemployermaybeslowintakingactiontoterminatethecon-
tractor's employment, the employer's duty to pay is at an end except as set out in clauses
8.7.4, 8.7.5 and 8.8. It should be noted, however, that there is no longer any provision for
automatic termination.
Theseclausesstipulatethatanaccountmustbedrawnupofwhateverbalancemaybedue
from employer to contractor, or vice versa as the case may be, after taking into account all
the costs of finishing off, including any direct loss or damage caused to the employer by the
termination. This must be done within a reasonable time after completion of the Works by
another contractor and the making good of defects. If the employer decides not to complete
the Worksusinganother contractor,astatement ofaccount must bedrawnupandsent tothe
original contractor after the expiry of six months from termination.
It is not unknown for liquidators to threaten employers with proceedings, either directly
or more usually through the services of specialist insolvency surveyors, if payment of all
money is not made immediately. This contract now makes clear that the normal payment
provisions are at an end. Therefore, if a certificate has already been issued, the employer
no longer has any obligation to pay the sum certified. If a certificate is due, the architect no
longer has a duty to certify. The employer or the architect should respond to the liquidator
orthesurveyor,referringtothecontractclauseasthereasonwhynofurtherpaymentwillbe
made until the final statement of account is prepared.
In these circumstances, the employer will often have delayed payment of a certificate be-
causeitissuspectedthatthecontractorisabouttobecomeinsolvent.Indeed,theemployer's
failure to pay and the failure of others may be the very reason why the contractor eventually
becomes insolvent. Therefore, at the date of insolvency, not only is a certified amount out-
standing, but it may have been outstanding for a considerable time. Is the employer bound
to pay such a sum on the basis that the employer cannot take advantage of its own breach
of contract (failing to pay a certified amount on time)? The answer to the question seems to
be that the employer is bound to pay monies that were outstanding at the date of the insolv-
ency. The use of the words '
which require further payment
' appears to support that view,
