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WWW.UKADJUDICATORS.CO.UK
FEBRUARY 2018 NEWSLETTER
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EDITORS COMMENTS
The collapse of Carillion has grabbed a
substantial amount of headlines over the last
month.
Whilst inquiries and investigations continue
into what actually happened some of the
issues highlighted by the press coverage are
explored in more detail from both a United
Kingdom and international perspective.
What impact this will have on the
Government response to the consultations on
retention and the Post Implementation
Review of the 2011 changes to Part 2 of the
Housing Grants, Construction and
Regeneration Act 1996 remains to be seen.
We welcome submissions to this newsletter
and you are invited to submit your articles,
case reviews, news and updates and other
such submissions for publication.
Please forward your submission in Word
format, use minimal endnotes if required and
any referencing should use the Harvard
system.
Sean Gibbs LLB(Hons)MICE FCIOB FRICS
FCIARB, is a director with Qualsurv
International and is available to sit as an
arbitrator, adjudicator, mediator, quantum
expert and dispute board member.
THE RIGHT TO SUSPEND
CONSTRUCTION WORKS FOR NON
PAYMENT IN ENGLAND
During the recent questions and answers
session held by MPs from the business select
committee; Carillion’s directors said that they
hadn’t been paid in Qatar and that they had
no right to suspend the works. The position in
England under the common law was not
dissimilar.
Prior to the Housing Grants Construction and
Regeneration Act 1996 a construction
contractor had no right under common law to
suspend works for non-payment. This
common law rule was clearly stated in the
case of Canterbury Pipelines ltd v Christchurch
Drainage Board [1979] 16 BLR 76.
This rule applied until Parliamentary
intervention changed the staus quo by the
introduction of The Housing Grants
Construction and Regeneration Act 1996 and
granted the right to suspend performance for
non-payment. This was later amended by
sections 138 to 145 of part 8 of the Local
Democracy, Economic Development and
Construction Act 2009.
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The revised right is stated at Section 112:
112 Right to suspend performance for non-
payment
(1) Where the requirement in section 111(1)
applies in relation to any sum but is not
complied with, the person to whom the sum is
due has the right (without prejudice to any
other right or remedy) to suspend
performance of any or all of his obligations
under the contract to the party by whom
payment ought to have been made ("the party
in default").
(2) The right may not be exercised without
first giving to the party in default at least
seven days' notice of intention to suspend
performance, stating the ground or grounds
on which it is intended to suspend
performance.
(3) The right to suspend performance ceases
when the party in default makes payment in
full of the amount referred to in subsection
(1).
(3A) Where the right conferred by this section
is exercised, the party in default shall be liable
to pay to the party exercising the right a
reasonable amount in respect of costs and
expenses reasonably incurred by that party as
a result of the exercise of the right.
(4) Any period during which performance is
suspended in pursuance of or in consequence
of the exercise of the right conferred by this
section shall be disregarded in computing for
the purposes of any contractual time limit the
time taken, by the party exercising the right or
by a third party, to complete any work directly
or indirectly affected by the exercise of the
right. Where the contractual time limit is set
by reference to a date rather than a period,
the date shall be adjusted accordingly.
Parties using this right must comply with the
provisions strictly or risk not benefitting from
the right to a reasonable amount in respect of
costs and expenses reasonably incurred by
that party as a result of the exercise of the
right or an extension of time for the period of
suspension.
Indeed just suspending works without
complying with the provisions could at least
be a breach of contract or at worst a
repudiatory breach of contract.
The standard forms of contract issued by the
Joint Contracts Tribunal contain a suspension
provision for non-payment and contractor’s
using the JCT forms could benefit from the
contractual right to suspend works .
The NEC3 and NEC4 Engineering and
Construction Contracts (ECC) do not contain
an express power of suspension for non-
payment. Instead, the statutory power to
suspend for non-performance pursuant to
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Housing Grants Construction and
Regeneration Act 1996, s 112 would apply.
In relation to contracts that are subject to
Housing Grants Construction and
Regeneration Act 1996, Option Y(UK)2; the
secondary options clauses of NEC4 makes it
clear that if the contractor exercises its right
under Housing Grants Construction and
Regeneration Act 1996 to suspend
performance, that is to be regarded as a
compensation event
Thomas Johnson, is a director in the global
construction claims consultancy Hanscomb
Intercontinental.
SECOND READING FOR MP’S BILL
FOR SCHEME TO HOLD
RETENTIONS IN TRUST
A private member’s bill to provide for
retentions in construction projects to be held
in a third party trust scheme is due for its
second reading in Parliament on Friday 27
April 2018.
Peter Aldous (Waveney) (Con) said in
Parliament at the first reading:
‘I beg to move,
That leave be given to bring in a Bill to make
provision about protecting retention deposits
in connection with construction contracts;
and for connected purposes.
Let me start by paying tribute to Sir Michael
Latham, who died in November. He was a
Member of this House for 18 years, from
1974. In 1994, he produced a report,
commissioned by the Government and the
construction industry, called “Constructing
the Team”. The report had a significant
impact on the industry and led to the passing
of part 2 of the Housing Grants, Construction
and Regeneration Act 1996, which is
commonly referred to as the Construction
Act. Unfortunately, one of Sir Michael’s
recommendations remains outstanding, and
has not been implemented. It relates to cash
retentions in a secure trust fund. Two decades
on, we should be rectifying that omission.
On 24 October, the Department for Business,
Energy and Industrial Strategy began a
consultation, which ends on 18 January, on
the practice of cash retentions in the
construction industry. That followed an
independent and long-awaited review which
confirmed that retentions are a critical issue
that affect the viability and productivity of
small and medium-sized enterprises in the
construction supply chain. They also increase
the cost of construction. Across the industry,
there is very strong support for putting a
solution in place now, with specialist
engineering contractors recommending that a
statutory ring fence of retentions is the best
option.
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I will now outline what the problem is.
Retentions are deductions—usually 5%, but
sometimes 10%—from moneys due to a
construction business. Ostensibly, they are
held as security in case a firm fails to return to
rectify defects. However, in practice, they are
often withheld to bolster the working capital
of the group withholding them. Under
standard industry contracts, they should be
returned within 12 months of the handover of
the works in question, but there are regular
delays of upwards of three years, and in one
case 12 years. According to Government
figures, almost £8 billion of cash retentions
has remained unpaid over the last three
years. Most of that cash has been provided by
SMEs. No other industry puts so much cash at
risk and places such a burden on small
businesses.
Research carried out by the Building
Engineering Services Association illustrates
the extent of the problem. Some 44% of
contractors have suffered non-payment due
to upstream insolvency in the last three years.
Almost half of businesses that have had
retentions held in the last three years have
experienced non-payment due to upstream
insolvency, with the average amount lost per
contract being £79,900.
Tier 1 contractors suffer average delays of
three months. There are delays of seven
months for tier 2 contractors and delays of
over nine months for tier 3 contractors. It
seems that the smaller the business is, the
harder it is hit. Research shows that
retentions make construction more expensive
than working without retentions. Most main
contractors do not have automated release
payments, and the average cost of taking legal
action over the last three years was £16,300
per contract.
The abuse of retentions has a negative knock-
on domino effect that cascades through the
construction industry. It restricts investment
in new equipment and facilities. It prevents
firms from taking on more work, and
discourages them from employing more
people and investing in apprenticeships. The
Electrical Contractors Association comments:
“smaller businesses can’t invest enough in
skills or equipment, or help to improve
industry productivity, if their cash flow is
restricted in this way.”
That is the problem; I shall now move on to
the solution.
The previous failed attempts to resolve the
problem confirm that the only solution is
legislation that secures moneys so that they
will be available to be returned, subject to the
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other party having right of recourse to the
moneys. A solution would be along the lines
of the statutory requirement in section 215 of
the Housing Act 2004 under which deposits
taken from shorthold tenancies must be
placed in a Government-approved scheme. A
similar scheme would work for retentions.
Ring-fencing the moneys in such a way would
mean that they would be secure and available
to be released on time, rather than subject to
the current wait of two or more years. That
would help to increase the velocity of cash in
the system, and if moneys were secured in
this way, banks would be able to lend to firms
on the back of such security.
It is appropriate that we look at the situation
in other countries. We are now very much out
of step with what happens elsewhere, where
there is legislation to ring-fence cash
retentions and/or to provide security for
construction payments in general. In Canada
and the United States, a system of charges
can be placed on a building or structure by a
firm that has not received its payment.
Australia and New Zealand have legislated to
ring-fence moneys. France has a statutory
framework that requires bank guarantees to
be used as security for payment in the
construction industries.
Doubters might ask whether there is a cost
associated with ring-fencing, but that should
not be a problem. The tenancy deposit
scheme to which I referred is self-funded
through the interest earned on deposits, with
any profit made transferred to a charity that
provides training in the sector. Such a scheme
would be a win-win for construction as it
would be a source of much-needed funds for
training.
This Bill is relatively straightforward. It would
amend the Construction Act to require the
Secretary of State to introduce regulations to
protect retentions. It would bring closure to
the many efforts made in the past to address
the problem. In doing so, it would transform
the prospects of SMEs, which make up 99% of
firms in the UK construction industry.
A key element of the Government’s industrial
strategy is to create the right conditions for
businesses to grow and to encourage them to
invest over the longer term to improve
productivity. The Bill would help to secure
that objective.
This is not the first time that the matter has
been raised in this House. When the then
Trade and Industry Committee carried out an
inquiry more than 15 years ago, it concluded
that the practice of cash retentions was
outdated and that abuse of the system was so
widespread that the Government were invited
to phase out retentions as soon as possible.
Sadly, they did not do so.
Four years ago, a cross-party parliamentary
inquiry into late payments and their impact on
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SMEs recommended that the Government
should introduce a retentions money Bill, with
money retained by a customer from a supplier
to be held in a trust account. That inquiry was
chaired by the hon. Member for Oldham East
and Saddleworth (Debbie Abrahams). On 26
January 2016, the hon. Member for Upper
Bann (David Simpson), a supporter of the Bill,
initiated a Westminster Hall debate on the
subject. As he will recall, the collapse of the
Patton Group in Northern Ireland left £10
million outstanding by way of retention
moneys. SMEs in Northern Ireland never saw
that money again.
On 26 April last year, the hon. Member for
Kilmarnock and Loudoun (Alan Brown)
introduced the Construction Industry
(Protection of Cash Retentions) Bill, also
under the ten-minute rule. Unfortunately, the
general election curtailed progress on that
Bill. The hon. Gentleman is also a supporter of
this Bill.
The Bill has strong support from the
construction industry. At the last count, it was
backed by 30 trade associations. Time, and
the embarrassment of missing someone out,
means I will not list them.
While the current consultation is welcome,
there has been too much talking for too long.
This matter must be addressed as soon as
possible. If one of the larger construction
companies were to fail, the consequences for
SMEs and their supply chains could be
disastrous. They could lose all their
retentions, adding to the £220 million that is
already lost annually. The Bill would help to
avert such a calamity.
This is a critical time for the construction
industry. We need to be building record
numbers of homes. As Brexit approaches, the
construction industry must be able to operate
in top gear. This restrictive and grossly unfair
practice acts as a brake on activity in the
sector. If we remove it, we can unleash
investment in jobs, apprenticeships and
technical innovation.
Sir Michael Latham recognised the need for a
partnership approach, with industry and the
Government working together. It will be a
fitting tribute to his work if, 22 years on, we
could finally deliver the final piece in the
jigsaw of his recommendations in
“Constructing the Team”.
WORSHIPFUL COMPANY OF
ARBITRATORS
Lord Dyson will be giving The Master’s Lecture
on Tuesday 13th March 2018 at Simmons &
Simmons LLP, CityPoint, One Ropemaker
Street, London, EC2Y 9SS . The title of the
lecture is What Are The Proper Limits To The
Immunity Of Arbitrators?
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COULD ADJUDICATOR GRADING
HELP TO INCREASE THE DIVERSITY
OF ADJUDICATORS ?
At the annual Adjudication Society conference
held in London in 2017 the issue of diversity
and inclusion was raised about adjudicators
by Simon Tolson a Senior Partner with
Fenwick Elliott .
One way that it may prove possible to
introduce new and less experienced
adjudicators onto panels is to create a grading
system for adjudicators. Queensland Australia
currently has such a scheme in place and uses
three grades:
1. Adjudicator (lowest)
2. Advanced Adjudicator
3. Senior Adjudicator (highest)
Unlike the United Kingdom there is only one
nominating body and as such this has
succeeded in its aims in line with the
recommendations made by Andrew Wallace
in his report titled Final Report of the Review
of the Discussion Paper – Payment dispute
resolution in the Queensland building and
construction industry dated 24 May 2013.
For such a grading scheme to work in the
United Kingdom the thirty plus adjudicator
nominating bodies and the principle
professional bodies would need to firstly
recognise there is a problem then reach
consensus how to tackle it.
Factors that would need to be discussed and
agreed upon would be the minimum standard
required to become an adjudicator , the
grading process and procedure and how
should disputes and decisions be categorised
so that a an inexperienced adjudicator can
develop from the starting grade and become a
Senior Adjudicator.
How seriously the industry takes the diversity
of adjudicators remains to be seen by the
action and commitment made in the months
ahead to firstly understand the problem then
to identify actions needed. What we cannot
afford to let happen is that the same pool of
old white male faces dominate and hog the
profession until their demise leaving a
succession problem and possible learning
curve for future generations.
UK adjudicators have on the whole been
highly thought of and respected globally and it
is important that their experience and wisdom
is passed on to future generations.
Thomas Johnson is a director in the global
construction claims consultancy Hanscomb
Intercontinental.
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MAXCON v VADASZ – AUSTRALIAN
HIGH COURT FINDS CLAUSES
COMMONLY FOUND IN
CONSTRUCTION CONTRACTS ARE
UNENFORCEABLE
Head contractors should review their
subcontracts to ensure they don’t
inadvertently contain “pay when paid”
provisions, following the High Court’s decision
Maxcon Constructions Pty Ltd v Vadasz [2018]
HCA 5 (Maxcon).
If you’re a construction lawyer or other
construction industry professional, by now
you’ve probably heard about the recent High
Court decision in Maxcon (handed down at
the same time as in Probuild Constructions
(Aust) Pty Ltd v Shade Systems Pty Ltd [2018]
HCA 4). Most commentators have focused on
the judicial review issue which arose in both
of those cases.
However, the High Court in Maxcon also
considered a separate issue. The court held
that a provision allowing a head contractor to
withhold retention moneys under a
subcontract until certain events had occurred
under the head contract was a “pay when
paid” provision, and was therefore not legally
enforceable under the security of payment
(SOP) legislation. This has potentially broad
implications for head contractors – for
retention provisions, but also other provisions
which attempt to make a payment under a
subcontract contingent on an event occurring
under a the head contract.
“Pay when paid” provisions
Prior to the enactment of the SOP legislation,
it was common for head contractors to
include a clause in their subcontracts which
provided that payment to the subcontractor
was either determined by the date on which
the head contractor received payment from
the principal (“pay when paid”); or dependent
on the head contractor receiving payment
from the principal (“pay if paid”).
By including these types of clauses, head
contractors were attempting to share the cash
flow risk of projects with their subcontractors.
The problem was, subcontractors typically
had much smaller balance sheets than head
contractors, and were less able to manage the
effects of poor cash flow – leading to a high
rate of subcontractor insolvency.
The purpose of the SOP legislation is to help
ensure security of payment for subcontractors
and reduce the high levels of insolvency. One
of the ways it does this is by prohibiting both
“pay when paid” and “pay if paid” provisions,
as well as a third, broader, type of provision
which “makes the liability to pay money
owing, or the due date for payment of money
owing, contingent or dependent on the
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operation of another contract”. Importantly
for the following analysis, money owing” is
defined as “money owing for construction
work carried out or undertaken to be carried
out…under the contract.”
Since the enactment of the SOP legislation,
head contractors have generally tried to avoid
drafting direct ‘pay when paid’ or ‘pay if paid’
provisions into their subcontracts. However,
the Maxcon case highlights the potential for
other common clauses to inadvertently fall
foul of the prohibition on pay when paid
provisions.
The High Court’s decision
The subcontract was for piling work, and
included a standard form retention clause.
This clause allowed the head contractor to
retain by way of security 10% of each progress
payment due to the subcontractor until the
head contractor had retained a total of 5% of
the contract sum.
The release of security the retention money
was tied to the issue of a certificate of
occupancy for the entire project. The High
Court held that the retention clause in the
subcontract was in fact a “pay when paid”
provision. This was because the dates for
release of the retention money under the
subcontract were dependent on the issue of a
certificate of occupancy, and such a certificate
could not be issued until completion of the
whole project in accordance with the head
contract. The release/payment of the
retention money was therefore “contingent
or dependent on the operation of another
contract”, and so the whole of the retention
monies clause, including the provision
allowing the head contractor to retain
retention monies from the progress payment
otherwise payable to the subcontractor, was
unenforceable.
Implications
This decision has significant implications for
subcontracting arrangements, particularly as
the High Court’s analysis is likely to apply to
the SOP legislation in most states (other than
Western Australia and the Northern Territory
where the legislation does not prohibit the
broader restriction on provisions that make
liability to make a payment under one
contract “contingent or dependent on the
operation of another contract”).
Retention money
Most obviously, head contractors will need to
consider their subcontract retention
provisions to ensure that they do not
contravene the “pay when paid” prohibition
by making the release of retention money
dependent on practical completion (or some
other event) occurring under the head
contract for the project.
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Instead, release of retention money needs to
be tied to operation of the subcontract itself,
e.g. practical completion and/or the expiry of
the defects liability period under that
subcontract. The problem for head
contractors of course is that in a large project
there may be a large number of subcontracts,
each with different dates for practical
completion that may be earlier (sometimes
significantly so) than the date for practical
completion under the head contract.
Two main issues arise if release of retention
money is tied to the defects liability periods
under each separate subcontract. First, this
adds to the administrative burden for the
head contractor, who now has to manage the
release of many retention amounts at
different times. More significantly, there may
be complications where an important piece of
subcontracted work is completed early in the
project (such the piling subcontract – which
was the relevant subcontract in the Maxcon
case). If the release of retention money under
the subcontract is tied to the expiry of the
defects liability period under that subcontract,
the time for release of retention money is
likely to arrive before the expiry of the defects
liability period under the head contract. And if
there are issues with that subcontractor’s
work which only become apparent after the
release of the retention money, it may be
difficult to get the subcontractor to come
back and fix the problem – even though the
defects liability period under the head
contract is still on foot.
One potential solution is for head contractors
to require bank guarantees or insurance
bonds instead of retention money. Unlike
retention money, a bank guarantee is not
“money owing” in relation to work under the
subcontract, but rather a security
requirement which is separate to the contract
sum. This means the “pay when paid”
provisions won’t apply. However, a
subcontractor has to pay to take out bank
guarantees or insurance bonds, so this kind of
requirement is likely to translate to higher
subcontract prices, and therefore higher
overall project cost.
Milestone payments
Another common type of provision which is
likely to be affected is milestone payments
under a subcontract which are linked to
events occurring under a head contract. For
example, a head contractor may want to tie a
subcontractor’s final payment to practical
completion under the head contract. Similar
to withholding security, the idea behind this is
to ensure the head contractor has some
leverage in circumstances where the principal
does not consider that the works under the
head contract have reached practical
completion due to some issue with the
subcontractor’s work.
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It now seems fairly likely that this kind of
provision is a “pay when paid” provision and is
therefore not enforceable – as it makes
payment to the subcontractor contingent on
an event occur under the head contract, over
which it has no control.
Linked claims/linked disputes provisions in
pass through subcontracts
The High Court’s decision also reinforces the
potential issues with common “linked claims
and linked disputes” type provisions.
The standard AS4903 pass through design and
construct subcontract contains a provision
which allows the head contractor to require a
subcontract dispute which affects the head
contract to be resolved as part of the head
contract dispute resolution process – and the
subcontractor is required to accept the
outcome of that dispute process.
Similar provisions are common in the core
subcontracts on PPP projects, which typically
contain a provision which attempts to limit
the liability of the Project Company to its
contractors by reference to the Project
Company’s entitlements against the State
under the PPP Contract. In essence – if the
contractor makes a claim against the Project
Company and that claim is one that can be
brought by the Project Company against the
State under the PPP Contract, the contractor’s
entitlement is limited to the amount
recovered by (or other relief granted to) the
Project Company under the PPP Contract.
Typically, the clause will also provide that it
does not apply to the extent that it would
have the effect of making the clause a "pay
when paid provision" within the meaning of
the SOP legislation.
The decision of the High Court in Maxcon
reinforces that these types of provisions may
be largely ineffective as, in many cases, they
will in fact operate as “pay when paid”
provisions.
It is relatively clear that a linked claims/linked
disputes provision does attempt to make an
entitlement under one contract “contingent
or dependent on the operation of another
contract”. The entitlement under the
subcontract is contingent on the success of
the head contractor’s claim or dispute under
the head contract. The analysis therefore
turns on the term “money owing”, defined as
“money owing for construction work carried
out or undertaken to be carried out…”
The question is whether a linked claim/linked
dispute provision operates to make payment
of money owing under the subcontract
contingent on the operation of the head
contract. The answer is – it depends on what
kind of claim we’re talking about.
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In my view, most claims that a subcontractor
would bring against a head contractor which
the head contractor would in turn bring
against the principal are likely to be claims for
“money owing”. For example, variation
claims, claims for costs incurred in dealing
with latent conditions, and claims for
acceleration costs (and potentially delay costs
as well), are all claims for money that relate to
the carrying out of construction work. In
those circumstances, a linked claims/linked
disputes provision is unlikely to be effective to
limit the subcontractor’s entitlements to the
extent of the head contractor’s recovery
against the principal. The head contractor can
try to protect itself from a potential gap
between the amount recovered from the
principal and the amount payable to a
subcontractor by ensuring that all relevant
contractual and technical provisions are
passed through to the subcontractor. But
even then there is no guarantee that a claim
or dispute will be determined the same way
under both the contracts.
However, on the other hand, some claims by
the subcontractor against the head contractor
will not be claims for “money owing”, and so
the prohibition on “pay when paid” provisions
will not apply. For example, a claim for an
extension of time is not a claim for money at
all, and a claim for breach of contract is a
claim for damages in respect of loss suffered,
and not a claim for money owing in relation to
construction work carried out.
Pass through of determinations
Finally, many pass through contracts attempt
to ‘pass through’ determinations and
decisions of the superintendent, principal, or
independent certifier under the head contract
to the subcontractor to the extent they relate
to the same issue (unless disputed). Similar to
the linked claims/linked disputes provisions,
these types of provisions are also likely to be
unenforceable to the extent they are linked to
payment of “money owing” to the
subcontractor.
Consider the following example: under the
head contract, the head contractor is required
to pass a certain prototype test before
proceeding to full production. One of the
head contractor’s payment milestones is
linked to passing this test. The head
contractor has subcontracted the work
relating to the production and testing of the
prototype, and has also included a payment
milestone under the subcontract linked to
passing the test. The superintendent under
the head contract determines that the test
had not been passed. The head contractor will
then want to ‘pass through’ that same
determination to the subcontractor. However,
this provision has the effect of making
payment to the subcontractor (the payment
milestone for completion of the test)
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contingent on the operation of the head
contract (whether or not the head contract
superintendent considers that the test was
passed) – and so is likely to offend the “pay
when paid” provisions of the SOP legislation.
To contrast: another example might be where
the head contract superintendent has
determined that a design document produced
by the subcontractor (and submitted by the
head contractor under the head contract)
does not comply with the contract. Provided
that this determination is not linked to
payment or withholding of the subcontract
price, the “pay when paid” provisions will not
apply.
Take-away
It has long been understood that “pay when
paid” and “pay if paid” provisions are
prohibited under security of payment
legislation. What was not well understood is
that provisions allowing a head contractor to
withhold payment under a subcontract until
certain events have occurred under the head
contract will also fall foul of the prohibition in
most states (other than WA and the NT). This
has potentially broad implications for head
contractors – for retention provisions, but
also other provisions which attempt to make a
payment under a subcontract contingent on
an event occurring under a the head contract.
Head contractors should review their
subcontracts to ensure they don’t
inadvertently contain “pay when paid”
provisions.
Owen Hayford, Partner of PwC Legal and
Hannah Stewart-Weeks Senior Associate of
PwC Legal. Owen is contactable by email
owen.hayford@pwc.com.
SCL INTERNATIONAL CONFERENCE
2018
The Society of Construction Law 8th
International Conference is being held at the
Palmer House Hotel Chicago from the 26th-
28th September 2018.
ESCL CONFERENCE 2018
The European Society of Construction Law
conference 2018 is due to take place
fromThursday, 25 October 2018 to Saturday,
27 October 2018.
ESCL SUMMER SCHOOL
Comparative European construction and
procurement law course is being held from
the 2-7 July 2018 at KIVI, Prinsessegracht 23,
The Hague, the Netherlands.
WWW.UKADJUDICATORS.CO.UK
FEBRUARY 2018 NEWSLETTER
14 | P a g e
ADJUDICATION SOCIETY ANNUAL
CONFERENCE 2018
The Society's Seventeenth Annual Conference
will be held at the Mercure Bristol Hotel on
Thursday 8th November 2018.
FIDIC CONFERENCES 2018
The FIDIC Middle East Contract Users'
Conference main conference is taking place
on the 20 & 21 February 2018 with workshops
on the 19 & 22 February 2018 in Dubai.
The FIDIC Asia Pacific contract users'
conference takes place in July 2018, the Latin
America contract users' conference takes
place in September 2018 and the Africa
contract users' conference is taking place at
Livingstone, Zambia in October 2018.
The FIDIC International Infrastructure
Conference takes place in Berlin from the 9-
11 September 2018 at the Intercontinental
Hotel Berlin.
DRBF CONFERENCES 2018
Paris, France 23 March 2018
Mexica City, Mexico 25-26April 2018
Tokyo, Japan 23-25 May 2018
Charlotte, USA 17-19 October 2017
Geneva, Switzerland 14-16 November 2018
UPDATED FIDIC SUITE
The FIDIC conference held in London on the
5th December 2017 saw the release of the
new Red, Yellow and Silver books.
FIDIC have now released copies for sale to the
general public in PDF and hard copy formats.
http://fidic.org/bookshop
ADR-ODR INTERNATIONAL
ADR-ODR International is holding an Executive
Negotiation & Conflict Management Skills
Course in Dubai on the 26th - 28th March
2018 at The Palm in partnership with the
European Institute for Conflict Resolution.
http://adrodrinternational.com/executive-
conflict-and-negotiation-skills-course/
UK ADJUDICATORS DINNER
The UK Adjudicators will be holding a dinner
in Bristol the evening of the 7th
November
2018, before the Adjudication Society's
Seventeenth Annual Conference is held on
Thursday the 8th November 2018.
Anyone with an interest in adjudication is
welcome to attend. Further details will follow
in due course.

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UK Adjudicators February 2018 newsletter

  • 1. WWW.UKADJUDICATORS.CO.UK FEBRUARY 2018 NEWSLETTER 1 | P a g e EDITORS COMMENTS The collapse of Carillion has grabbed a substantial amount of headlines over the last month. Whilst inquiries and investigations continue into what actually happened some of the issues highlighted by the press coverage are explored in more detail from both a United Kingdom and international perspective. What impact this will have on the Government response to the consultations on retention and the Post Implementation Review of the 2011 changes to Part 2 of the Housing Grants, Construction and Regeneration Act 1996 remains to be seen. We welcome submissions to this newsletter and you are invited to submit your articles, case reviews, news and updates and other such submissions for publication. Please forward your submission in Word format, use minimal endnotes if required and any referencing should use the Harvard system. Sean Gibbs LLB(Hons)MICE FCIOB FRICS FCIARB, is a director with Qualsurv International and is available to sit as an arbitrator, adjudicator, mediator, quantum expert and dispute board member. THE RIGHT TO SUSPEND CONSTRUCTION WORKS FOR NON PAYMENT IN ENGLAND During the recent questions and answers session held by MPs from the business select committee; Carillion’s directors said that they hadn’t been paid in Qatar and that they had no right to suspend the works. The position in England under the common law was not dissimilar. Prior to the Housing Grants Construction and Regeneration Act 1996 a construction contractor had no right under common law to suspend works for non-payment. This common law rule was clearly stated in the case of Canterbury Pipelines ltd v Christchurch Drainage Board [1979] 16 BLR 76. This rule applied until Parliamentary intervention changed the staus quo by the introduction of The Housing Grants Construction and Regeneration Act 1996 and granted the right to suspend performance for non-payment. This was later amended by sections 138 to 145 of part 8 of the Local Democracy, Economic Development and Construction Act 2009.
  • 2. WWW.UKADJUDICATORS.CO.UK FEBRUARY 2018 NEWSLETTER 2 | P a g e The revised right is stated at Section 112: 112 Right to suspend performance for non- payment (1) Where the requirement in section 111(1) applies in relation to any sum but is not complied with, the person to whom the sum is due has the right (without prejudice to any other right or remedy) to suspend performance of any or all of his obligations under the contract to the party by whom payment ought to have been made ("the party in default"). (2) The right may not be exercised without first giving to the party in default at least seven days' notice of intention to suspend performance, stating the ground or grounds on which it is intended to suspend performance. (3) The right to suspend performance ceases when the party in default makes payment in full of the amount referred to in subsection (1). (3A) Where the right conferred by this section is exercised, the party in default shall be liable to pay to the party exercising the right a reasonable amount in respect of costs and expenses reasonably incurred by that party as a result of the exercise of the right. (4) Any period during which performance is suspended in pursuance of or in consequence of the exercise of the right conferred by this section shall be disregarded in computing for the purposes of any contractual time limit the time taken, by the party exercising the right or by a third party, to complete any work directly or indirectly affected by the exercise of the right. Where the contractual time limit is set by reference to a date rather than a period, the date shall be adjusted accordingly. Parties using this right must comply with the provisions strictly or risk not benefitting from the right to a reasonable amount in respect of costs and expenses reasonably incurred by that party as a result of the exercise of the right or an extension of time for the period of suspension. Indeed just suspending works without complying with the provisions could at least be a breach of contract or at worst a repudiatory breach of contract. The standard forms of contract issued by the Joint Contracts Tribunal contain a suspension provision for non-payment and contractor’s using the JCT forms could benefit from the contractual right to suspend works . The NEC3 and NEC4 Engineering and Construction Contracts (ECC) do not contain an express power of suspension for non- payment. Instead, the statutory power to suspend for non-performance pursuant to
  • 3. WWW.UKADJUDICATORS.CO.UK FEBRUARY 2018 NEWSLETTER 3 | P a g e Housing Grants Construction and Regeneration Act 1996, s 112 would apply. In relation to contracts that are subject to Housing Grants Construction and Regeneration Act 1996, Option Y(UK)2; the secondary options clauses of NEC4 makes it clear that if the contractor exercises its right under Housing Grants Construction and Regeneration Act 1996 to suspend performance, that is to be regarded as a compensation event Thomas Johnson, is a director in the global construction claims consultancy Hanscomb Intercontinental. SECOND READING FOR MP’S BILL FOR SCHEME TO HOLD RETENTIONS IN TRUST A private member’s bill to provide for retentions in construction projects to be held in a third party trust scheme is due for its second reading in Parliament on Friday 27 April 2018. Peter Aldous (Waveney) (Con) said in Parliament at the first reading: ‘I beg to move, That leave be given to bring in a Bill to make provision about protecting retention deposits in connection with construction contracts; and for connected purposes. Let me start by paying tribute to Sir Michael Latham, who died in November. He was a Member of this House for 18 years, from 1974. In 1994, he produced a report, commissioned by the Government and the construction industry, called “Constructing the Team”. The report had a significant impact on the industry and led to the passing of part 2 of the Housing Grants, Construction and Regeneration Act 1996, which is commonly referred to as the Construction Act. Unfortunately, one of Sir Michael’s recommendations remains outstanding, and has not been implemented. It relates to cash retentions in a secure trust fund. Two decades on, we should be rectifying that omission. On 24 October, the Department for Business, Energy and Industrial Strategy began a consultation, which ends on 18 January, on the practice of cash retentions in the construction industry. That followed an independent and long-awaited review which confirmed that retentions are a critical issue that affect the viability and productivity of small and medium-sized enterprises in the construction supply chain. They also increase the cost of construction. Across the industry, there is very strong support for putting a solution in place now, with specialist engineering contractors recommending that a statutory ring fence of retentions is the best option.
  • 4. WWW.UKADJUDICATORS.CO.UK FEBRUARY 2018 NEWSLETTER 4 | P a g e I will now outline what the problem is. Retentions are deductions—usually 5%, but sometimes 10%—from moneys due to a construction business. Ostensibly, they are held as security in case a firm fails to return to rectify defects. However, in practice, they are often withheld to bolster the working capital of the group withholding them. Under standard industry contracts, they should be returned within 12 months of the handover of the works in question, but there are regular delays of upwards of three years, and in one case 12 years. According to Government figures, almost £8 billion of cash retentions has remained unpaid over the last three years. Most of that cash has been provided by SMEs. No other industry puts so much cash at risk and places such a burden on small businesses. Research carried out by the Building Engineering Services Association illustrates the extent of the problem. Some 44% of contractors have suffered non-payment due to upstream insolvency in the last three years. Almost half of businesses that have had retentions held in the last three years have experienced non-payment due to upstream insolvency, with the average amount lost per contract being £79,900. Tier 1 contractors suffer average delays of three months. There are delays of seven months for tier 2 contractors and delays of over nine months for tier 3 contractors. It seems that the smaller the business is, the harder it is hit. Research shows that retentions make construction more expensive than working without retentions. Most main contractors do not have automated release payments, and the average cost of taking legal action over the last three years was £16,300 per contract. The abuse of retentions has a negative knock- on domino effect that cascades through the construction industry. It restricts investment in new equipment and facilities. It prevents firms from taking on more work, and discourages them from employing more people and investing in apprenticeships. The Electrical Contractors Association comments: “smaller businesses can’t invest enough in skills or equipment, or help to improve industry productivity, if their cash flow is restricted in this way.” That is the problem; I shall now move on to the solution. The previous failed attempts to resolve the problem confirm that the only solution is legislation that secures moneys so that they will be available to be returned, subject to the
  • 5. WWW.UKADJUDICATORS.CO.UK FEBRUARY 2018 NEWSLETTER 5 | P a g e other party having right of recourse to the moneys. A solution would be along the lines of the statutory requirement in section 215 of the Housing Act 2004 under which deposits taken from shorthold tenancies must be placed in a Government-approved scheme. A similar scheme would work for retentions. Ring-fencing the moneys in such a way would mean that they would be secure and available to be released on time, rather than subject to the current wait of two or more years. That would help to increase the velocity of cash in the system, and if moneys were secured in this way, banks would be able to lend to firms on the back of such security. It is appropriate that we look at the situation in other countries. We are now very much out of step with what happens elsewhere, where there is legislation to ring-fence cash retentions and/or to provide security for construction payments in general. In Canada and the United States, a system of charges can be placed on a building or structure by a firm that has not received its payment. Australia and New Zealand have legislated to ring-fence moneys. France has a statutory framework that requires bank guarantees to be used as security for payment in the construction industries. Doubters might ask whether there is a cost associated with ring-fencing, but that should not be a problem. The tenancy deposit scheme to which I referred is self-funded through the interest earned on deposits, with any profit made transferred to a charity that provides training in the sector. Such a scheme would be a win-win for construction as it would be a source of much-needed funds for training. This Bill is relatively straightforward. It would amend the Construction Act to require the Secretary of State to introduce regulations to protect retentions. It would bring closure to the many efforts made in the past to address the problem. In doing so, it would transform the prospects of SMEs, which make up 99% of firms in the UK construction industry. A key element of the Government’s industrial strategy is to create the right conditions for businesses to grow and to encourage them to invest over the longer term to improve productivity. The Bill would help to secure that objective. This is not the first time that the matter has been raised in this House. When the then Trade and Industry Committee carried out an inquiry more than 15 years ago, it concluded that the practice of cash retentions was outdated and that abuse of the system was so widespread that the Government were invited to phase out retentions as soon as possible. Sadly, they did not do so. Four years ago, a cross-party parliamentary inquiry into late payments and their impact on
  • 6. WWW.UKADJUDICATORS.CO.UK FEBRUARY 2018 NEWSLETTER 6 | P a g e SMEs recommended that the Government should introduce a retentions money Bill, with money retained by a customer from a supplier to be held in a trust account. That inquiry was chaired by the hon. Member for Oldham East and Saddleworth (Debbie Abrahams). On 26 January 2016, the hon. Member for Upper Bann (David Simpson), a supporter of the Bill, initiated a Westminster Hall debate on the subject. As he will recall, the collapse of the Patton Group in Northern Ireland left £10 million outstanding by way of retention moneys. SMEs in Northern Ireland never saw that money again. On 26 April last year, the hon. Member for Kilmarnock and Loudoun (Alan Brown) introduced the Construction Industry (Protection of Cash Retentions) Bill, also under the ten-minute rule. Unfortunately, the general election curtailed progress on that Bill. The hon. Gentleman is also a supporter of this Bill. The Bill has strong support from the construction industry. At the last count, it was backed by 30 trade associations. Time, and the embarrassment of missing someone out, means I will not list them. While the current consultation is welcome, there has been too much talking for too long. This matter must be addressed as soon as possible. If one of the larger construction companies were to fail, the consequences for SMEs and their supply chains could be disastrous. They could lose all their retentions, adding to the £220 million that is already lost annually. The Bill would help to avert such a calamity. This is a critical time for the construction industry. We need to be building record numbers of homes. As Brexit approaches, the construction industry must be able to operate in top gear. This restrictive and grossly unfair practice acts as a brake on activity in the sector. If we remove it, we can unleash investment in jobs, apprenticeships and technical innovation. Sir Michael Latham recognised the need for a partnership approach, with industry and the Government working together. It will be a fitting tribute to his work if, 22 years on, we could finally deliver the final piece in the jigsaw of his recommendations in “Constructing the Team”. WORSHIPFUL COMPANY OF ARBITRATORS Lord Dyson will be giving The Master’s Lecture on Tuesday 13th March 2018 at Simmons & Simmons LLP, CityPoint, One Ropemaker Street, London, EC2Y 9SS . The title of the lecture is What Are The Proper Limits To The Immunity Of Arbitrators?
  • 7. WWW.UKADJUDICATORS.CO.UK FEBRUARY 2018 NEWSLETTER 7 | P a g e COULD ADJUDICATOR GRADING HELP TO INCREASE THE DIVERSITY OF ADJUDICATORS ? At the annual Adjudication Society conference held in London in 2017 the issue of diversity and inclusion was raised about adjudicators by Simon Tolson a Senior Partner with Fenwick Elliott . One way that it may prove possible to introduce new and less experienced adjudicators onto panels is to create a grading system for adjudicators. Queensland Australia currently has such a scheme in place and uses three grades: 1. Adjudicator (lowest) 2. Advanced Adjudicator 3. Senior Adjudicator (highest) Unlike the United Kingdom there is only one nominating body and as such this has succeeded in its aims in line with the recommendations made by Andrew Wallace in his report titled Final Report of the Review of the Discussion Paper – Payment dispute resolution in the Queensland building and construction industry dated 24 May 2013. For such a grading scheme to work in the United Kingdom the thirty plus adjudicator nominating bodies and the principle professional bodies would need to firstly recognise there is a problem then reach consensus how to tackle it. Factors that would need to be discussed and agreed upon would be the minimum standard required to become an adjudicator , the grading process and procedure and how should disputes and decisions be categorised so that a an inexperienced adjudicator can develop from the starting grade and become a Senior Adjudicator. How seriously the industry takes the diversity of adjudicators remains to be seen by the action and commitment made in the months ahead to firstly understand the problem then to identify actions needed. What we cannot afford to let happen is that the same pool of old white male faces dominate and hog the profession until their demise leaving a succession problem and possible learning curve for future generations. UK adjudicators have on the whole been highly thought of and respected globally and it is important that their experience and wisdom is passed on to future generations. Thomas Johnson is a director in the global construction claims consultancy Hanscomb Intercontinental.
  • 8. WWW.UKADJUDICATORS.CO.UK FEBRUARY 2018 NEWSLETTER 8 | P a g e MAXCON v VADASZ – AUSTRALIAN HIGH COURT FINDS CLAUSES COMMONLY FOUND IN CONSTRUCTION CONTRACTS ARE UNENFORCEABLE Head contractors should review their subcontracts to ensure they don’t inadvertently contain “pay when paid” provisions, following the High Court’s decision Maxcon Constructions Pty Ltd v Vadasz [2018] HCA 5 (Maxcon). If you’re a construction lawyer or other construction industry professional, by now you’ve probably heard about the recent High Court decision in Maxcon (handed down at the same time as in Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd [2018] HCA 4). Most commentators have focused on the judicial review issue which arose in both of those cases. However, the High Court in Maxcon also considered a separate issue. The court held that a provision allowing a head contractor to withhold retention moneys under a subcontract until certain events had occurred under the head contract was a “pay when paid” provision, and was therefore not legally enforceable under the security of payment (SOP) legislation. This has potentially broad implications for head contractors – for retention provisions, but also other provisions which attempt to make a payment under a subcontract contingent on an event occurring under a the head contract. “Pay when paid” provisions Prior to the enactment of the SOP legislation, it was common for head contractors to include a clause in their subcontracts which provided that payment to the subcontractor was either determined by the date on which the head contractor received payment from the principal (“pay when paid”); or dependent on the head contractor receiving payment from the principal (“pay if paid”). By including these types of clauses, head contractors were attempting to share the cash flow risk of projects with their subcontractors. The problem was, subcontractors typically had much smaller balance sheets than head contractors, and were less able to manage the effects of poor cash flow – leading to a high rate of subcontractor insolvency. The purpose of the SOP legislation is to help ensure security of payment for subcontractors and reduce the high levels of insolvency. One of the ways it does this is by prohibiting both “pay when paid” and “pay if paid” provisions, as well as a third, broader, type of provision which “makes the liability to pay money owing, or the due date for payment of money owing, contingent or dependent on the
  • 9. WWW.UKADJUDICATORS.CO.UK FEBRUARY 2018 NEWSLETTER 9 | P a g e operation of another contract”. Importantly for the following analysis, money owing” is defined as “money owing for construction work carried out or undertaken to be carried out…under the contract.” Since the enactment of the SOP legislation, head contractors have generally tried to avoid drafting direct ‘pay when paid’ or ‘pay if paid’ provisions into their subcontracts. However, the Maxcon case highlights the potential for other common clauses to inadvertently fall foul of the prohibition on pay when paid provisions. The High Court’s decision The subcontract was for piling work, and included a standard form retention clause. This clause allowed the head contractor to retain by way of security 10% of each progress payment due to the subcontractor until the head contractor had retained a total of 5% of the contract sum. The release of security the retention money was tied to the issue of a certificate of occupancy for the entire project. The High Court held that the retention clause in the subcontract was in fact a “pay when paid” provision. This was because the dates for release of the retention money under the subcontract were dependent on the issue of a certificate of occupancy, and such a certificate could not be issued until completion of the whole project in accordance with the head contract. The release/payment of the retention money was therefore “contingent or dependent on the operation of another contract”, and so the whole of the retention monies clause, including the provision allowing the head contractor to retain retention monies from the progress payment otherwise payable to the subcontractor, was unenforceable. Implications This decision has significant implications for subcontracting arrangements, particularly as the High Court’s analysis is likely to apply to the SOP legislation in most states (other than Western Australia and the Northern Territory where the legislation does not prohibit the broader restriction on provisions that make liability to make a payment under one contract “contingent or dependent on the operation of another contract”). Retention money Most obviously, head contractors will need to consider their subcontract retention provisions to ensure that they do not contravene the “pay when paid” prohibition by making the release of retention money dependent on practical completion (or some other event) occurring under the head contract for the project.
  • 10. WWW.UKADJUDICATORS.CO.UK FEBRUARY 2018 NEWSLETTER 10 | P a g e Instead, release of retention money needs to be tied to operation of the subcontract itself, e.g. practical completion and/or the expiry of the defects liability period under that subcontract. The problem for head contractors of course is that in a large project there may be a large number of subcontracts, each with different dates for practical completion that may be earlier (sometimes significantly so) than the date for practical completion under the head contract. Two main issues arise if release of retention money is tied to the defects liability periods under each separate subcontract. First, this adds to the administrative burden for the head contractor, who now has to manage the release of many retention amounts at different times. More significantly, there may be complications where an important piece of subcontracted work is completed early in the project (such the piling subcontract – which was the relevant subcontract in the Maxcon case). If the release of retention money under the subcontract is tied to the expiry of the defects liability period under that subcontract, the time for release of retention money is likely to arrive before the expiry of the defects liability period under the head contract. And if there are issues with that subcontractor’s work which only become apparent after the release of the retention money, it may be difficult to get the subcontractor to come back and fix the problem – even though the defects liability period under the head contract is still on foot. One potential solution is for head contractors to require bank guarantees or insurance bonds instead of retention money. Unlike retention money, a bank guarantee is not “money owing” in relation to work under the subcontract, but rather a security requirement which is separate to the contract sum. This means the “pay when paid” provisions won’t apply. However, a subcontractor has to pay to take out bank guarantees or insurance bonds, so this kind of requirement is likely to translate to higher subcontract prices, and therefore higher overall project cost. Milestone payments Another common type of provision which is likely to be affected is milestone payments under a subcontract which are linked to events occurring under a head contract. For example, a head contractor may want to tie a subcontractor’s final payment to practical completion under the head contract. Similar to withholding security, the idea behind this is to ensure the head contractor has some leverage in circumstances where the principal does not consider that the works under the head contract have reached practical completion due to some issue with the subcontractor’s work.
  • 11. WWW.UKADJUDICATORS.CO.UK FEBRUARY 2018 NEWSLETTER 11 | P a g e It now seems fairly likely that this kind of provision is a “pay when paid” provision and is therefore not enforceable – as it makes payment to the subcontractor contingent on an event occur under the head contract, over which it has no control. Linked claims/linked disputes provisions in pass through subcontracts The High Court’s decision also reinforces the potential issues with common “linked claims and linked disputes” type provisions. The standard AS4903 pass through design and construct subcontract contains a provision which allows the head contractor to require a subcontract dispute which affects the head contract to be resolved as part of the head contract dispute resolution process – and the subcontractor is required to accept the outcome of that dispute process. Similar provisions are common in the core subcontracts on PPP projects, which typically contain a provision which attempts to limit the liability of the Project Company to its contractors by reference to the Project Company’s entitlements against the State under the PPP Contract. In essence – if the contractor makes a claim against the Project Company and that claim is one that can be brought by the Project Company against the State under the PPP Contract, the contractor’s entitlement is limited to the amount recovered by (or other relief granted to) the Project Company under the PPP Contract. Typically, the clause will also provide that it does not apply to the extent that it would have the effect of making the clause a "pay when paid provision" within the meaning of the SOP legislation. The decision of the High Court in Maxcon reinforces that these types of provisions may be largely ineffective as, in many cases, they will in fact operate as “pay when paid” provisions. It is relatively clear that a linked claims/linked disputes provision does attempt to make an entitlement under one contract “contingent or dependent on the operation of another contract”. The entitlement under the subcontract is contingent on the success of the head contractor’s claim or dispute under the head contract. The analysis therefore turns on the term “money owing”, defined as “money owing for construction work carried out or undertaken to be carried out…” The question is whether a linked claim/linked dispute provision operates to make payment of money owing under the subcontract contingent on the operation of the head contract. The answer is – it depends on what kind of claim we’re talking about.
  • 12. WWW.UKADJUDICATORS.CO.UK FEBRUARY 2018 NEWSLETTER 12 | P a g e In my view, most claims that a subcontractor would bring against a head contractor which the head contractor would in turn bring against the principal are likely to be claims for “money owing”. For example, variation claims, claims for costs incurred in dealing with latent conditions, and claims for acceleration costs (and potentially delay costs as well), are all claims for money that relate to the carrying out of construction work. In those circumstances, a linked claims/linked disputes provision is unlikely to be effective to limit the subcontractor’s entitlements to the extent of the head contractor’s recovery against the principal. The head contractor can try to protect itself from a potential gap between the amount recovered from the principal and the amount payable to a subcontractor by ensuring that all relevant contractual and technical provisions are passed through to the subcontractor. But even then there is no guarantee that a claim or dispute will be determined the same way under both the contracts. However, on the other hand, some claims by the subcontractor against the head contractor will not be claims for “money owing”, and so the prohibition on “pay when paid” provisions will not apply. For example, a claim for an extension of time is not a claim for money at all, and a claim for breach of contract is a claim for damages in respect of loss suffered, and not a claim for money owing in relation to construction work carried out. Pass through of determinations Finally, many pass through contracts attempt to ‘pass through’ determinations and decisions of the superintendent, principal, or independent certifier under the head contract to the subcontractor to the extent they relate to the same issue (unless disputed). Similar to the linked claims/linked disputes provisions, these types of provisions are also likely to be unenforceable to the extent they are linked to payment of “money owing” to the subcontractor. Consider the following example: under the head contract, the head contractor is required to pass a certain prototype test before proceeding to full production. One of the head contractor’s payment milestones is linked to passing this test. The head contractor has subcontracted the work relating to the production and testing of the prototype, and has also included a payment milestone under the subcontract linked to passing the test. The superintendent under the head contract determines that the test had not been passed. The head contractor will then want to ‘pass through’ that same determination to the subcontractor. However, this provision has the effect of making payment to the subcontractor (the payment milestone for completion of the test)
  • 13. WWW.UKADJUDICATORS.CO.UK FEBRUARY 2018 NEWSLETTER 13 | P a g e contingent on the operation of the head contract (whether or not the head contract superintendent considers that the test was passed) – and so is likely to offend the “pay when paid” provisions of the SOP legislation. To contrast: another example might be where the head contract superintendent has determined that a design document produced by the subcontractor (and submitted by the head contractor under the head contract) does not comply with the contract. Provided that this determination is not linked to payment or withholding of the subcontract price, the “pay when paid” provisions will not apply. Take-away It has long been understood that “pay when paid” and “pay if paid” provisions are prohibited under security of payment legislation. What was not well understood is that provisions allowing a head contractor to withhold payment under a subcontract until certain events have occurred under the head contract will also fall foul of the prohibition in most states (other than WA and the NT). This has potentially broad implications for head contractors – for retention provisions, but also other provisions which attempt to make a payment under a subcontract contingent on an event occurring under a the head contract. Head contractors should review their subcontracts to ensure they don’t inadvertently contain “pay when paid” provisions. Owen Hayford, Partner of PwC Legal and Hannah Stewart-Weeks Senior Associate of PwC Legal. Owen is contactable by email owen.hayford@pwc.com. SCL INTERNATIONAL CONFERENCE 2018 The Society of Construction Law 8th International Conference is being held at the Palmer House Hotel Chicago from the 26th- 28th September 2018. ESCL CONFERENCE 2018 The European Society of Construction Law conference 2018 is due to take place fromThursday, 25 October 2018 to Saturday, 27 October 2018. ESCL SUMMER SCHOOL Comparative European construction and procurement law course is being held from the 2-7 July 2018 at KIVI, Prinsessegracht 23, The Hague, the Netherlands.
  • 14. WWW.UKADJUDICATORS.CO.UK FEBRUARY 2018 NEWSLETTER 14 | P a g e ADJUDICATION SOCIETY ANNUAL CONFERENCE 2018 The Society's Seventeenth Annual Conference will be held at the Mercure Bristol Hotel on Thursday 8th November 2018. FIDIC CONFERENCES 2018 The FIDIC Middle East Contract Users' Conference main conference is taking place on the 20 & 21 February 2018 with workshops on the 19 & 22 February 2018 in Dubai. The FIDIC Asia Pacific contract users' conference takes place in July 2018, the Latin America contract users' conference takes place in September 2018 and the Africa contract users' conference is taking place at Livingstone, Zambia in October 2018. The FIDIC International Infrastructure Conference takes place in Berlin from the 9- 11 September 2018 at the Intercontinental Hotel Berlin. DRBF CONFERENCES 2018 Paris, France 23 March 2018 Mexica City, Mexico 25-26April 2018 Tokyo, Japan 23-25 May 2018 Charlotte, USA 17-19 October 2017 Geneva, Switzerland 14-16 November 2018 UPDATED FIDIC SUITE The FIDIC conference held in London on the 5th December 2017 saw the release of the new Red, Yellow and Silver books. FIDIC have now released copies for sale to the general public in PDF and hard copy formats. http://fidic.org/bookshop ADR-ODR INTERNATIONAL ADR-ODR International is holding an Executive Negotiation & Conflict Management Skills Course in Dubai on the 26th - 28th March 2018 at The Palm in partnership with the European Institute for Conflict Resolution. http://adrodrinternational.com/executive- conflict-and-negotiation-skills-course/ UK ADJUDICATORS DINNER The UK Adjudicators will be holding a dinner in Bristol the evening of the 7th November 2018, before the Adjudication Society's Seventeenth Annual Conference is held on Thursday the 8th November 2018. Anyone with an interest in adjudication is welcome to attend. Further details will follow in due course.