:: Subcontractors questions and answers - Payments - Practical completion

These topical questions are regularly asked by Contractors, so we have posted them here with their answers. Simply click on the queries, below, to reveal the answers. We hope you find them useful.

1. Under a form of subcontract where the DOM/1 conditions apply, when does practical completion occur?

2. Once the value of a subcontractor's interim application has been certified by an employer and subsequently paid, can it be devalued by an employer in a later certificate?

3. What circumstances are contractors / subcontractors entitled to be paid for materials stored off site? Would the materials form part of an interim payment, or payment on account?

4. Is it possible for a contractor to rightfully claim that practical completion (or substantial completion) has been achieved, if an Employer takes possession before all the works are completed?

5. Subcontractors prepare for the release of the final balance of retention only when the period included in the contract for correcting defects has expired and all defects under the main contract have been made good. If the main contractor or other subcontractors are slow or non co-operative in making good defects, is there any mechanism to enable the subcontractor to secure an early release of retention?

6. When defects come to light after the architect / engineer has issued the final certificate, does the contractor / subcontractor still have a contractual liability or can it be argued that once the certificate has been issued the employer loses his rights under the contract?

7. Is it possible for a site agent to sign a daywork sheet and then refuse to certify the sums involved for payment? Is a quantity surveyor entitled to reduce the hours included on a signed daywork sheet if he considered them unreasonable or excessive?

8. When an architect / engineer is considering a contractor's application for an extension of time, can he successfully defend against this by reducing the contractors time entitlement to reflect time saved by work omitted?

9. Who is held to account if damage is caused to a subcontractor's work by persons unknown, the subcontractor, contractor, or employer?

10. How can subcontractors avoid pay when paid clauses?

11. Can a subcontractor legitimately walk off site if payment isn't made when due?

12. Who is responsible for the additional costs and delays resulting from unforeseen bad ground conditions-the employer or the contractor / subcontractor?

13. Can a subcontractor lose his entitlements to extensions of time if he fails to submit the appropriate notices and details required by the contract?

14. A contractor / subcontractor issues a programme which is reviewed and accepted by the client and shows completion on the completion date written into the contract. Is it then the case that drawings / information be issued in good time to enable the contractor / subcontractor to carry out the works at the time and in the sequence indicated on the programme?

15. If a subcontractor is falling behind programme and in danger of completing late due to his own poor performance, can the employing contractor bring other labour onto site to supplement the failing subcontractor's efforts to ensure completion on time?

16. Where work is omitted from the contract by way of a variation can a subcontractor claim for a proportional loss of profits?

17. A contractor / subcontractor submits a tender and successfully receives a letter of intent. What risk is he exposed to in commencing work, ordering materials or carrying out design? If the project is abandoned before a contract is signed will there be an entitlement to payment?

18. What is the meaning of 'time at large'? Does it affect the employer's entitlements to levy liquidated damages for late completion?

19. Can a contractor stipulate conditions in his order that take precedence over any conflicting conditions referred to in the subcontractor's acceptance letter?

1. Under a form of subcontract where the DOM/1 conditions apply, when does practical completion occur?

Clause 14.1 of DOM/1 and DOM/2 requires the subcontractor to serve notice on the main contractor when in his opinion the subcontract works are practically completed. If the main contractor subsequently replies by letter disagreeing with the practical completion claim, then practical completion will only occur on the date finally agreed between the parties. In the absence of agreement, practical completion is deemed to occur on the date of practical completion certified by the architect under the main contract.
If the subcontractor fails to serve proper notice then again practical completion of the subcontract work will be deemed to occur on the same day as practical completion certified by the architect under the main contract. Subcontractors operating under DOM/1 and DOM/2 are advised to ensure that they make proper written notice to the main contractor as soon as the subcontractor considers his work has been completed.

2. Once the value of a subcontractor’s interim application has been certified by an employer and subsequently paid, can it be devalued by an employer in a later certificate?

Payment of an interim certificate represents a payment on account of the final sum due. Employers are within their right to certify a sum and later reduce the amount certified in respect of the work executed. Exceptions to this are when sums are certified in respect of nominated subcontractor’s work under ICE 6th & 7th Editions.

3. What circumstances are contractors / subcontractors entitled to be paid for materials stored off site? Would the materials form part of an interim payment, or payment on account?

Payments made for materials stored off site will only occur if the contract makes specific provision for such payment and the requisite conditions are fulfilled. For instance JCT 98 requisite conditions are;

The ownership of said materials will vest in the employer after payment is made.
The contractor must provide a bond (unless the items are uniquely listed and the Appendix does not require a bond).
The items in storage must be kept apart and properly marked.
The contractor must provide proof of insurance.

4. Is it possible for a contractor to rightfully claim that practical completion (or substantial completion) has been achieved, if an Employer takes possession before all the works are completed?

In the absence of precise contract wording, but in the light of the decision in Skanska v. Anglo-Amsterdam Corp (2002), it is likely that, if an employer takes possession of a building or facility, practical completion will be deemed to have occurred. This, however, may be confused with access being granted to the employer where practical completion is not deemed to have occurred. There is always likely to be scope for argument as to whether an employer has been granted occupation when practical completion will be deemed to have occurred, to be contrasted with the employer gaining access only, which does not involve practical completion.

The ruling in Pitchmastic v. Birse Construction (2000) said that provided the correction of the outstanding defects is proceeding with regular diligence, the contractor will not be obliged to release the outstanding retention to the subcontractor. The key here is whether defects are being attended to regularly and diligently.

JCT 80 (in England but not Scotland) prior to amendment No.15 issued in July 1995, MF/1 and the IChemE Forms make a final certificate conclusive evidence that work has been satisfactorily carried out. Actions under the JCT wording must be commenced within 28 days of the issue of the final certificate and in the case of MF/1 within three months to be effective.
Other commonly used standard forms of contract give the final certificate no such effect and the Limitation Act periods apply.
JCT amendment No.15 is now incorporated in JCT 98 and the final certificate is conclusive only in respect of particular quantities of materials or goods, or any standard of workmanship expressly described in the contract documents as being to the approval of the architect.
If, due to fraudulent concealment the defect could not have been detected following reasonable inspection, then the final certificate will not protect the contractor / subcontractor.

The function of a dayworks sheet is to record all resources employed on a specific operation. A signature made by a site agent merely indicates that the hours and resources listed have been employed in that operation. Nothing more nothing less. It does not necessarily indicate an intention to make payment as the works described on the daywork sheets may be catered for elsewhere in the contract. This applies whether or not the signature is accompanied by the words ‘for record purposes only’.
Where a payment is made and based on a daywork sheet signed by an authorized person, it is not permissible for the quantity surveyor to reduce the hours on the grounds that he considers them excessive. If the hours are in any way incorrect then the signature should not have been appended in the first place.

8. When an architect / engineer is considering a contractor’s application for an extension of time, can he successfully defend against this by reducing the contractors time entitlement to reflect time saved by work omitted?

There are forms of contract that specifically deal with this question. In the absence of specific wording in the contract it is unlikely that a court would accept that an architect / engineer has any power to reduce the contract period, or an extension of time already granted. However, the contractor should always continue his works in a timely manner, despite there being surplus time due to omissions since periods can be taken into account if the need arises for a further extension of time at a later date.

9. Who is held to account if damage is caused to a subcontractor’s work by persons unknown, the subcontractor, contractor, or employer?

Where non-standard forms are used, many Main Contractors like to include terms which place the risk of damage onto the subcontract.
Where the standard forms of subcontract conditions for use with the JCT main conditions apply the subcontractor is liable for damage to goods until such time as they are ‘fully, finally and properly incorporated into the Works’ unless the damage has been caused by the specified perils (fire, storm, tempest, etc…) or due to negligence by the main contractor or other subcontractors.
In the case of the CECA Blue Form of subcontract the subcontractor is at risk until the main contract works have been substantially completed unless Part II of the Fifth Schedule states differently.

10. How can subcontractors avoid pay when paid clauses?

The law concerning pay when paid clauses has become subject to statutory control as a result of the Housing Grants, Construction and Regeneration Act 1996. The Act seeks to outlaw pay when paid clauses, except in respect of insolvency on the part of the original / primary paying party, i.e. the client.

11. Can a subcontractor legitimately walk off site if payment isn't made when due?

Under the Housing Grants, Construction and Regeneration Act 1996 there is a right to suspend work for non-payment under section 112.

12. Who is responsible for the additional costs and delays resulting from unforeseen bad ground conditions—the employer or the contractor / subcontractor?

Which party to a contract is responsible for unforeseen bad ground should be made clear by the express terms of the contract. The ICE 6th and 7th Editions GC/Works/1 1998, the Engineering and Construction Contract (MEC and the PIDIC Red Book) are all examples of standard forms of contract which places the risk of unforeseen bad ground conditions onto the employer.
If nothing is stated within the contract on the matter and there is no provision for re-measurement the contractor will normally be deemed to have taken the risk. This is particularly relevant in lump sum design and construct forms of procurement.

13. Can a subcontractor lose his entitlements to extensions of time if he fails to submit the appropriate notices and details required by the contract?

Where a subcontractor fails to serve a proper delay notice this will not result in the loss of rights to an extension of time unless the contract expressly states that the service of a notice is a condition precedent to such rights. It is necessary to point out that if a written notice is required by the terms of the contract as a condition precedent, then the lack of it will result in the loss of a right to an extension of time, even in the case of an employer’s delay.

It seems clear that where the standard conditions apply the contractor / subcontractor is not entitled to have information issued solely to suit his programme. The contract generally indicates the following as important:

Any information release schedules required by the contract.
The contractor / subcontractor sending a request for information.
The progress of the works.
A reasonable time for the consultants to produce and issue the information.

Therefore if work is progressing in accordance with the programme and proper written requests for information have been sent, then there may be an obligation to issue drawings in response to those requests.

A contractor who introduces operatives onto site or employs another subcontractor to supplement the work force employed by one of its subcontractors, risks a claim being issued for breach of contract. A clause, however, can be drafted into the subcontract which gives the contractor express power to bring on extra labour. If a subcontractor is failing to proceed regularly and diligently with the works, there is usually an entitlement under the terms of the subcontract to terminate the subcontract.

16. Where work is omitted from the contract by way of a variation can a subcontractor claim for a proportional loss of profits?

It really does depend on the wording of the contract signed up to. In general, Standard Form use ‘provide for work to be varied including omissions’ and therefore there is no route for claiming for a loss of profit.

The wording of a letter of intent is important. If the contractor or subcontractor is instructed to commence design, order materials, or commence work and complies with the instructions within the letter of intent he is entitled to receive fair and reasonable payment. If subsequently a contract is entered into the letter of intent will normally merge into the contract and payment will be made in accordance with the terms of the contract. If no contract is concluded payment will be on the terms of the letter of intent or on a quantum meruit basis.

18. What is the meaning of ‘time at large’? Does it affect the employer’s entitlements to levy liquidated damages for late completion?

Time at large is a term used for a contract that is entered into with no fixed period to completion. Where this occurs the contractor’s obligation is to complete work within a reasonable timeframe.
There may also be circumstances which arise rendering a completion period fixed by the contract as no longer operable, thus rendering time at large. For example this could be where a delay is caused by the employer and the terms of the contract make no allowance for extending the completion date due to delays by the employer.

19. Can a contractor stipulate conditions in his order that take precedence over any conflicting conditions referred to in the subcontractor’s acceptance letter?

A contractor is entitled in his order to specifically state that he is not prepared to accept terms in a subcontractor’s acceptance, or confirmation of order, unless he otherwise agrees.
Where wording such as, ‘unless otherwise agreed the subcontractor is deemed to have accepted those conditions (X, Y, Z)… which shall apply to the exclusion of any conditions which appear on the acceptance form’, are used then the subcontractor must specifically show that the contractor has accepted a variance in the order if it is to be upheld. Remember that three necessary elements are required of a binding agreement; an agreement, contractual intention and due consideration.