In support of sub-contractors (2018) 29 5 Cons.Law 21 [Archived]
In support of sub-contractors (2018) 29 5 Cons.Law 21 [Archived]

The following Construction guidance note provides comprehensive and up to date legal information covering:

  • In support of sub-contractors (2018) 29 5 Cons.Law 21 [Archived]
  • Key Points
  • Financial checks
  • Sub-contract terms and some questions to ask
  • Exceptions to the pari passu rule
  • Retention of title and materials on site
  • Summary

ARCHIVED: This Practice Note has been archived and is not maintained.

This article appears as originally published in Construction Law on 1 June 2018 and is not maintained.

Anne Wright of Lawrence Stephens Solicitors says there are several vital steps that sub-contractors should take to protect themselves against main contractor insolvency. Ask if the main contract requires a retention before agreeing to one, she advises.

Key Points

  1. Financial checks: background checks on the main contractor pre and post contract

  2. Keep up to date with accounts: monitor late or suspended payments and timing of pay less notices

  3. Payment security: look for an advance payment bond and possible direct payment

  4. Consider project bank accounts and escrow accounts

  5. Question whether retentions are really necessary

'Contractor's assets insufficient to pay creditors' - 'Sub-contractors owed millions of pounds for work carried out prior to the firm's liquidation': such headlines are now horridly familiar.

Construction insolvencies account for up to 20% of corporate failures in the UK per annum. This is not new or peculiar to Carillion at a time when sterling pressures make supplies more expensive, margins squeezed to less than 2%, and tender races increasing as contractors chase volume of work.

How might a sub-contractor seek to protect itself from main contractor insolvency, which for many, would result in their own insolvency or bankruptcy?