27th April 2022
Following Carillion’s liquidation, many employer and developers are keen to establish stronger relationships with sub-contractors on site. But what are the legal risks and how can they be avoided?
There is generally no obligation or entitlement for a developer to pay a sub-contractor directly. However, clients have on occasion asked lawyers to include direct payment clauses to enable developers to by-pass the main contractor, and maintain progress of the project and cashflow downstream to sub-contractors. Sub-contractors may suspend the works for non-payment and the developer may feel obliged to make a direct payment to keep the project afloat.
In summary, whilst the commercial and practical reasons for making direct sub-contractor payments are appealing, the law does not give developers much freedom. The legal risks may not be immediately apparent, but if operated wrongly could lead to a breach of contract.
These risks include:
Careful thought needs to be given to how a project is procured at the outset. Alternatives include:
For more information on this issue, please contact Natalia Sokolov.