Subcontractors need a better grasp of their rights when it comes to payment, says Peter English of construction law specialist PJE International.
I am sure it will come as no surprise to specialist contractors that our recent payment survey – where we canvassed 59 subcontractors and specialists we have worked with – revealed that unfair payment practices are still rife in UK construction.
In fact, the survey suggested that three in every five subcontractors were underpaid by main contractors, even when they had delivered the perfect job.
Whilst this payment practice is fundamentally wrong, the survey also flagged up another major concern that can leave subcontractors open to abuse: a basic lack of understanding of their legal rights when it comes to payment.
The survey found that almost 10% of subcontractors think main contractors can just call and refuse payment, without giving any justification or following any sort of legal procedure.
But that’s just not true. In fact, whenever a main contractor withholds funds they must, by law, issue you with the appropriate notice in writing.
If it is in relation to a construction contract coming into force before October 2011, the main contractor must send the subcontractor a written withholding notice. While they do not have to give reasons for withholding the amount specified, you can still challenge the validity of the notice and take the matter to adjudication, if necessary.
And for construction contracts entered into after October 2011, the new Construction Act applies, which places stricter requirements on main contractors wanting to withhold funds.
Under this Act, main contractors are required by law to issue subcontractors with what is now called a “pay less” notice. This is similar to the former withholding notice. However, it must be issued within a specified time frame allowed in the contract, set out detailed reasons as to why the amounts are being withheld and clearly show the basis of all calculations used. Furthermore, the value of the work must be ascertained at the date the pay less notice was given.
Our survey found that 40% of subcontractors only challenge one in every 10 contracts they sign up to. What is worse, one in 20 subcontractors failed to challenge the terms of a single contract they signed up to last year.
If the main contractor doesn’t comply with the correct formalities with withholding or pay less notices, the subcontractor is put in a very strong position to recover whatever amount is disputed.
That said, getting paid what you think you are owed can very much depend on the contract terms you agreed to in the first place, which brings us to another risk area for subcontractors.
The fact that many subcontractors are not aware of their rights when it comes to payment highlights just how little they know about the legal contracts they are signing up to in the first place.
In fact, our survey found that 40% of subcontractors only challenge one in every 10 contracts they sign up to. What is worse, one in 20 subcontractors failed to challenge the terms of a single contract they signed up to last year.
I cannot emphasise enough to subcontractors the risks they may be exposing themselves to by not taking the time to read or challenge the terms in their subcontractor agreements.
So often I come across clients wanting to take a main contractor to adjudication, but when you actually look at what the specialist contractor has signed up to, they haven’t got a case. That is because, in many of these instances, they have literally signed their rights away by signing up to the terms.
For example, one of our clients agreed to the following term: “The Contractor may terminate the subcontractor’s employment under this subcontract forthwith upon notice in writing to the subcontractor.”
Now you may think this is a low risk clause. After all, you would assume your main contractor would only terminate the contract if you were at fault – but there is actually nothing in the clause to say that must be the case.
In fact, if you sign up to this clause you sign out of any rights you have under the Construction Act. So if the main contractor then decides to terminate your work for any reason, they can seize your equipment and materials on site to finish the job. Worse still, they can also employ another subcontractor to do the job and charge you the cost for doing so.
All of this can be avoided by asking a dispute avoidance and resolution expert to look over your contract before signing up to it.
Peter English FRICS FCIArb is managing director and founder of construction law specialist PJE International. www.pjeinternational.com Tel: 0116 288 2003
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Hi I’m self employed have been currently working for a company after a few bad weeks of not enough materials on site etc (not making enough money to cover bills) it happened again last week so I took the decision to leave the site and do another job to cover my bills. Now the previous contractor has not payed me for leaving
Hi. Three of us were taken on as two self-employed brickies and one labourer last month. We were each paid weekly. Last week we should have got our final week’s pay but the main contractor made a mistake and paid all of our money to the labourer. He’s now disappeared and the company says it’s our responsibility to chase him. What are my rights?
Hi
We have been issued so many SI s on my current job . Main contractor starts not to paid it or paid but taken back in next 2 months .
They keep issue us with more SI s , and saying by clouse 2 of the contract we can not refuse additional job ( SI s )
If I refused to do it may put site at risk not hand it over on time.
If I continue to do them . I may never get paid on the end for some of them.
Well said, I believe there should be a forum where subcontractors will from time to time be briefed on their rights especially on contracts and payment terms. subcontractors also have to do due diligence before signing any contracts. It is always better to high the services of professionals to clarify terms and conditions before a contract is signed.
Malaysia has a law that mandates payment within the agreed period and is applicable to all except Government funded projects.
I have advised participants of my construction projects training that Sub-Contractors who feel that the main contractor may not settle when due they should provide in the sub-contract agreement requiring that the Client make direct payments to the Sub Contractors.
Some Sub-Cons have done this in cases they had experienced problems with the Main Contractors who received moneys from the Clients but delayed paying the Sub Contractors their dues.
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This is a good news feature. But what about the sub-contractors who themselves engage subcontractors, like the company I work for, where we supply and work on sites as water treatment technicians?
We still experience horrendous delays in payments which, according to the M&E contractors we work for, are due to delays in the main contractors delaying payments. So the practice is still going on and the further down the line you are, the worse it seems to get.
I have just completed work for a sub contractor but he says he hasn’t been paid so therefore I don’t get paid! This cant be right, he employed me, not the main contractor. Is he responsible for my payment? Any advice would be much appreciated. PS Could i sue him?
Hi I did some carpentry work for a guy for 5 days. He never paid me for it. Now I got threating messages from him bc I quit and he is telling me i need to pay 2000 pounds to him or else they coming to get me. I have all messages saved. Help please. How can I get my money.
Hi,I’ve just recently finished working for a contractor on a self employed basis,who pays 4 weeks in arrears on all invoices,I have now moved on and with other good contractors but the last company havnt paid my 8nvoice right stating they havnt been paid so I won’t receive the outstanding sum until they do(the outstanding sum is overtime days) …is there anything I can do to receive what’s owed to me as I do a high standard of work…many thanks.
@Ben Ince
The contractor is liable to pay you, if he makes a mistake it’s up to him to rectify it.
That said, it sounds like a made-up excuse not to pay.
Main contractors are constantly moaning about the skills crisis yet continue to treat those in the supply chain like dirt. Maybe there is a connection?
subcontractor said the work was substandard and i was not on site and has emails to back their claims’ but won’t produce them but they still sent me to site costing me £20 a day in travel expenses and still refuses to pay after 4 months
A main construction contractor owes just my business almost £9K. It’s been one full year. I have chased a few times via email with a response ‘ don’t worry I’ll sort you out ”
What are my options?
Subcontractor here desperately need advice started as late payments then received part payment stated if I carry on working he cannot guarantee I will get paid at this point its costing me £50 a week in fuel I can’t afford with no pay so I said I can’t return as I need to find work that pays he said he understood and would pay me the remainder yesterday now at the brink of visiting the food bank to feed my kids with still no payment from him I can’t afford small claims court as I have no money I can’t even pay my rent I have never felt so low and desperate what can I do
I have been told I am not getting paid for a job I invoiced for 3 weeks ago, and have now only been told they are not paying me because they had to go behind me and rectify my works. How do I prove that they havnt had too as there was no contract signed and the only correspondence I have between the main contractor is over txt.
Roy a statutory demand with late payment charge and statutory interest.
Followed by a winding up notice correctly delivered
I am a bricky. I had finished building a house in December and now the contract manager had refused to pay me the past two weeks and is now refusing to pay the other two lads I work with. He said there was problems with the house we built so i rectified these problems but is still refusing my wage and has stated he will refuse my wage in the future. Where do I stand with this??
Hi there, I’m a decorator who has recently done some work for a ‘friend’ who was contracted to carry out maintenance for a block management company. There was no written contract but we agreed I’d be payed £1300 for my time. I was paid £700 And was told I’d receive the rest once he’d been payed. I have texts to prove he said this. It’s been a month and he still hasn’t paid. Can you please advise me on what my options are?