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[ Questions answered: Legal advice ]

The contract we are employed under states ‘we can be paid for materials off-site, provided the employer agrees to our request’.

We have decided to buy and store significant amounts of our general purpose copper cable – not only to guarantee supply, but also to reduce our exposure to price fluctuations. Unfortunately, we used all our cash, and when we asked for the provisions of the materials off-site clause to be enacted, we were told there was no-way we would get any money ‘up-front’. Can they do that?

Clients are under no obligation to pay for any work unless it has been properly executed or it forms

part of the contract agreement. Indeed, without stage or interim payments, the employer has only to perform his part of the bargain – that is, pay the price agreed when the works have been substantially delivered.

In these times of recession, when any number of the contracting parties could become insolvent, it would be an unwise consultant who would advise his client to pay for anything before a strict requirement provision has been met. Even with the insurances in place

and proper labelling of goods, payment for materials off-site is risky – if for no other reason than the payer may have to negotiate with his supplier’s insolvency administrator for the release of the goods. Besides, material off-site provisions were never intended for general material purchases. Materials stored off-site have to be specifically constructed or sourced for the individual project, and as the ability to re-locate them to an alternative site increase, so the likelihood of early payment decreases. In these days, where ‘cash is king’,

perhaps it would have been better pricing the risk in your contract and letting the price of the materials fluctuate. If you are in a position to negotiate your work, then we suggest today is the day to dust off the JCT fluctuation provisions and ask the employer to carry the risk. It should prove cheaper than paying both your premium and the cost of providing a performance bond. In this market, it is the volatility of

material prices that may force some contractors out of business. Finally, you should check that your security is adequate, and keep your insurance company informed – as such a store of materials poses an increased risk to you and them.

Guarding against security scare

We employed a specialist company to install a security system for us, but we have received a number of complaints from our client about the system’s performance. The subcontractor’s owner has recently died, and it looks as though they may eventually cease trading. We do not wish to pay for their errors – how do we protect ourselves?

When you placed the order with this subcontractor, did you check to see whether they were a limited company? Did you also check to see that their public liability insurances were current and likely to out-see the project? If you did, then you stand a chance of

resolving the matter. If the subcontractor is a limited company, then the owner dying will have practical

significance, but it will not have legal significance. A limited company exists in its own right. It has continuing obligations, duties and responsibilities regardless of the death of the ‘controlling mind’. If the client’s complaints are well founded, you should formally advise your subcontractor of the cause of the complaint, what you expect to happen and by what date it needs to be done. If, as it seems likely, he fails to react, then you must instruct another contractor to complete the work. This new contractor must be appointed after you have obtained competitive quotations. Copy their quote and your demand for payment to the defaulting subcontractor but, for the sake of expediency, commence legal action to recover the money. Put the subcontractor’s insurer company on notice, stating that if the subcontractor fails to reimburse you and files for insolvency you will be asking them to reimburse you instead. You need to act quickly and get specialist legal advice on suing the insurers directly. There has recently been case law that may help.

May 2011 ECA Today 55

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