Paying Subcontractors Directly is a Risky Business

When an employer’s relationship with the contractor it employs becomes strained, all sorts of issues can arise. For example, if the contractor is in difficulties, it may delay making payments to subcontractors, which can in turn lead to them being unwilling to work, or slowing down their efforts, with subsequent impact on the building project.

In such an event, the employer may decide to pay a subcontractor directly in order to keep things moving. The employer will then wish to have those payments refunded from (or taken into account as deductions from stage payments to) the contractor.

The potential for disagreements arising from such circumstances is all too obvious and a recent case involving the construction of a superyacht illustrates the kind of issues that can arise.

The main contractor disagreed with payments claimed by some subcontractors. The subcontractors threatened to down tools and the employer reacted by taking matters into its own hands and paying the subcontractors directly. It then sought to recover the sums paid from the contractor.

At issue was whether a clause in the contract that allowed the employer to reserve the right to make payments directly to subcontractors was sufficient for the employer to recover those payments from the contractor. In a complicated ruling, although the Court ruled that it was not, it did decide that a claim against the contractor would succeed because the contractor had been in breach of its contractual responsibility to manage the construction project and the employer had made the payments to ensure its completion.

For advice on dealing with any construction dispute, contact us at 020 7822 4000 or email construction@healys.old-website.shout-loud.co.uk.