Specialists sound alarm on onerous contract clauses

Aaron Morby 2 months ago
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Specialists are seeing a sharp rise in the use of onerous contract clauses being introduced by main contractors.

The proliferation in the use of bespoke contracts that often purport to be standard forms is creating a minefield for unsuspecting subcontractors.

Specialists now claim that most tier one contractors have shifted away from standard forms, as they seek to shift risk on projects with paper-thin margins.

A spokesman for the British Constructional Steelwork Association, said: “We have contracts that contain more additional clauses than there are clauses in the standard version.

“While everyone accepts that there are risks in contracting this sort of behaviour is beyond risk management and verges on blatant abuse of power.”

Another subcontractor told the Enquirer: “I was presented with a standard JCT the other day that should have been around 76 pages but ran to 177 pages.

“Some firms don’t realise it but they can be agreeing to unlimited liability, or agreeing terms that PI insurers will not pay out on.”

The rise in non-standard forms has prompted the BCSA to highlight clauses now slipping into common use that are leaving firms seriously exposed.

A working party set up by the association has revised its ‘Construction Contractual Handbook’ to spotlight common contractual traps.

The latest edition is now being offered to all subcontractors as well as the wider industry community of developers, employers, contractors, consultants, surveyors and insurers.

Red flag clauses

Subcontractor to coordinate all other subcontractors trades

Example of wording: “The subcontractor shall be responsible for co-ordinating the subcontract works with the works of the main contractor, its agents and subcontractors and any other parties on the site. Such co-ordination shall include but not necessarily be limited to design (where applicable), programming, sequencing of works, checking of levels/setting out/dimensions/adequacy of preceding works, installation of health and safety.

Risk
The risk of co-ordinating the works (and checking works carried out by others) is being passed down to the subcontractor, where this should stay firmly with the main contractor.

Ground Conditions clause

“The subcontractor accepts that it has had an opportunity to inspect the physical and other conditions (including the sub-surface conditions) of or affecting the site. Any adverse ground conditions or artificial obstructions encountered during the execution of the subcontract works shall be the sole responsibility of the subcontractor and there shall be no addition to the subcontract sum nor any extension of time nor any loss or expense claim granted.”

Another also used (sent by readers)

“The Subcontractor shall not and shall not be entitled to rely upon any survey, report or other document prepared by or on behalf of the contractor and the contractor makes no representation or warranty as to the accuracy or completeness of any such survey, report or document.”

Risk
The clause puts the risk of discovering anything which would impede progress or mean that additional expense has to be incurred firmly at the subcontractor’s door.

Pay when paid clause

“The Contractor shall not be liable to make any payment to the subcontractor in respect of any work executed or materials supplied or any other provision entitling the subcontractor to payment (including for the avoidance of doubt retention withheld) for which the contractor has not received payment under the main contract.

Risk

Effectively a ‘pay when paid’ where the subcontractor has to credit risk the client and the main contractor.

Fitness for purpose clause

In bespoke contracts, often the actual words “fit for purpose” may be used. Be aware also of other wording which implies fitness for purpose, such as “meeting the performance specifications set out in the contractor’s requirements”. Under NEC3 and NEC4 contracts, fitness for purpose for design is the default position unless option X15 is selected (reasonable skill and care). In JCT2016 D&B Subcontract, Clause 2.13.1 restricts design liability to that of an architect or other appropriate professional designer (which will be “reasonable skill and care” but this is sometimes deleted.

Risk
Designing something which is fit for purpose is a more onerous duty than using reasonable skill and care to do so. It is often not covered by PI insurers, and they sometimes specifically require that you do not accept any fitness for purpose obligations.

Subcontractor payment clawback clause if employer fails (sent by readers)

In the event that the contractor had previously made payment to the subcontractor for work or matters that the contractor has an entitlement under the main contract for payment from the employer… and by reason of the insolvency of the employer, the contractor had not received, the subcontractor shall refund the contractor to the extent the contractor has paid the subcontractor.

Risk

You lose all payment!

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