Payment - Scottish Construction Contracts - page 226

Building Ltd v. he Croydon Hotel & Leisure Co. Ltd (1985) and GPT Realisations Ltd
(in Administrative Receivership and in Liquidation) v. Panatown Ltd (1992). Contrast,
however,thedecisionin Concorde Construction Co. Ltd v. Cogan Co. Ltd (1984).
Unfortunately, it appears that under Scots law the terms of clause 4.18.3 of the SBC
and clause 4.16.2 of the SBC/DB are insufficient to create a trust without other actions
on the part of the Employer, see Clark Taylor & Co. Ltd v. Quality Site Development
(Edinburgh) Ltd (1981) and Balfour Beatty Ltd v. Britannia Life (1997). This appears
to mean that in Scotland under the SBC and the SBC/DB, if an Employer becomes
insolvent, then, in respect of the payment of retention which has been deducted, the
Contractor may find themselves in no better a position than other ordinary creditors.
This may differ from the position under English law, where a trust can be established
by less formal means. A detailed examination of the law of creation of trusts is beyond
the scope of this topic.
8.6.4 Retention bonds
Apracticehasgrownupwhereby,inordertoreceivepaymentofthefullamount
of interim certificates and the final account, the contractor will often provide the
employer with a bond equivalent to the amount which would otherwise have been
retained by the employer until full satisfaction of the works by the contractor, includ-
ing remedying defects. These bonds are either put in place from the commencement
of the works or are put in place at the time of practical completion in respect of the
remaining half of the retention fund which would otherwise not be payable until
ater(inthecaseoftheSBCandtheSBC/DB)theissueofaCertiicateofMaking
Good/Notice of Completion of Making Good. his practice has now been formalized
in clause 4.19 of the SBC and clause 4.17 of the SBC/DB. The parties can choose to
apply these clauses by filling in the Contract Particulars appropriately. These clauses
set out the mechanics of operating the retention bond. See also Section 23.2.6.
8.6.5 Retention under the NEC3
The core clauses of the NEC3 do not make provision for retention. Secondary
Option X16: Retention does, however, contain retention provisions that the parties
can agree to include. Secondary Option X16 is, however, not applicable to Option
F - Management Contracts.
If Option X16 is used, the Employer requires to enter a retention percentage and
a retention free amount in the Contract Data. At each payment assessment date the
retention percentage is applied to the Price for Work Done to Date (PWDD), and the
relevant sum is retained by the Employer from the amount due to the Contractor.
The retention sum is retained by the Employer until the earlier of the Completion of
the works or the date on which the Employer takes over the whole of the works, at
which point the retention is halved. The final moiety of retention is released to the
Contractor when the Defects Certificate has been issued, and no amount is retained