Civil Engineering Reference
In-Depth Information
requires to notify the Architect/Contract Administrator beforehand and, if requested,
consult with the Employer.
This is not a step back to nominationof sub-contractorswhich featured in JCT 1998
(and earlier) suites of contracts where there was a direct contractual link between the
Employer and nominated sub-contractor. There was a perception in some quarters
that the wholesale removal of nomination provisions left a gap since nomination had
the advantage to Employers of allowing them to specify who actually performed the
relevant sub-contract works, and also gave the Contractor some limited protection
in the event of a failure by that sub-contractor (which protection was not conferred
by the 'listed sub-contractor' provisions). The Named Specialist Update perhaps goes
some way to addressing that gap.
The NEC3 contains no corresponding provisions in respect of named or specialist
sub-contractors.
11.6 Direct payments to sub-contractors
Apart from the provisions on direct payment discussed above in the context of nom-
inated sub-contracts, in certain circumstances (usually for commercial considera-
tions), employers agree to pay sub-contractors directly. his should not be done in the
absence of agreement with the contractor, whether under the contract or otherwise,
and any direct payment provision should not only confer a right on the employer to
make a direct payment to a sub-contractor in certain defined circumstances, but must
also allow the employer to deduct an equivalent amount from sums otherwise due to
themaincontractor.Otherwise,theemployer'sprimaryliabilitytopaythecontrac-
tor is not satisfied by the direct payment. An illustration of the issues that can arise
is the Extra Division decision of
Brican Fabrications Ltd
v.
Merchant City Develop-
ments Ltd
(2003). In this case, Merchant City, as employer, agreed to pay Brican direct
(as sub-contractor) on account of what turned out to be the latter's well-grounded
concerns as to the solvency of the main contractor. The sub-contract entered into
between the main contractor and Brican provided that the main contractor assented
to the direct payment arrangementbetween Merchant City and Brican.he maincon-
tractor thereafter went into liquidation and the parties to the action could not agree
whether Merchant City had agreed to pay Brican direct or whether the agreement was
that Merchant City would deduct from sums due to the main contractor that portion
which the main contractor owed to Brican and pay it direct to Brican, as agent of the
main contractor. The Extra Division preferred the former.
Care should also be taken in relation to direct payments where there is a likelihood
of the contractor's insolvency, since such payments could in certain circumstances be
challenged by the contractor's insolvency practitioner as an unfair preference under
section 243 of the Insolvency Act 1986 (see
British Eagle International Airlines Ltd
v.
Compagnie National Air France
(1975)).
An alternative mechanism for ensuring security of payments to sub-contractors
and which is growing in popularity is that of Project Bank Accounts. See Section 8.7.
