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Preserving and Maximising 

It is common practice for subcontracts to be placed at varying times during the course of a project.

If delays occur during the currency of a project, it will be inevitable that various subcontracts will be placed on different programmes and base costs. It is therefore not uncommon for subcontracts to be placed when the actual progress of the works no longer conforms to the contractor's current baseline programme. These problems regularly occur on construction projects and are a constant source of contractual disputes.

Author: Matthew Greenhalgh, Technical Director, Driver Trett UAE. 

In some cases, the subcontract works may be on the critical path, in which case the alignment of the subcontractor's programme and the main contract programme need to be given very careful attention. If the subcontract work is on the critical path, an excusable delay under the main contract (i.e. a delay which is not the responsibility of the contractor or subcontractor) which affects the subcontract works is likely to have an equal effect to the subcontract and main contract completion dates.

However, if the subcontract works are not on the critical path, excusable delays which occur may have different effects to the subcontract and main contract completion dates. For example, an excusable delay to the progress of subcontract works may give rise to an extension of time under the subcontract works, but not to an equal extension of time entitlement under the main contract works.

Most forms of subcontract contain provisions for extensions of time to be made for the following reasons:

• Delay for which the contractor is entitled to an extension of time for completion of the works pursuant to the main contract; and
• Delay or default on the part of the contractor, or persons for whom the contractor is responsible (i.e. other subcontractors).

If the subcontractor is delayed by matters for which the employer is responsible, the contractor may be able to obtain a remedy under the main contract subject to the subcontractor complying with the relevant subcontract provisions. Therefore, subcontractor claims for delays which are the responsibility of the employer are likely to receive the contractor's co-operation. However, if the subcontractor is delayed by matters for which the contractor is responsible, it is likely that the subcontractors claims for an extension of time will be subjected to resistance by the contractor.

From a practical point of view, it is vital that subcontractors maintain good relationships and co-operate with the main contractor in order to obtain maximum entitlement under the main contract. The sooner the subcontractor recognises the merits of co-operating with the contractor on record keeping and giving notices, the greater the chance of maximising their entitlement to an extension of time and the recovery of additional costs. Although it is not uncommon for subcontractors to work largely in isolation in the preparation of claims for onward submission via the contractor to the employer, a joint approach between the contractor and subcontractor could be more powerful and give a greater chance of success provided that the claim has merit and substance.

It is paramount that subcontractors ensure that their subcontracts are back-to-back with the main contract, which essentially means that all the provisions in the main contract in connection with the subcontractor's obligations, rights and remedies are required to work together as if the main contract provisions were set out in the subcontract. Of particular note are those provisions which might preclude the subcontractor from obtaining a greater level of entitlement than granted to the contractor.

Therefore, prior to the execution of the subcontract, the subcontractor should carefully examine the main contract and subcontract provisions to ensure that the provisions are operating on a back-to-back basis. This is particularly important in respect of the contractor’s and subcontractor’s obligations to give notice. The subcontractor's obligations to give notice should be consistent with the contractor's rights to give notice in a way that neither the contractor or subcontractor are disadvantaged. It is not uncommon to discover during the currency of the works that the main contract and subcontract are not actually operating on a back-to-back basis, especially for those subcontracts where the standard provisions have been amended. This issue regularly occurs on projects and leads to contractual disputes.

Subcontractors who cause delay and/or disruption may find themselves liable for claims from three directions, all recoverable through the provisions of the subcontract:

• Claims for the contractor's own costs caused by the subcontractor's default;
• Liquidated damages levied against the contractor by the employer; and
• Claims from other subcontractors against the contractor resulting from the subcontractor's default.

Where a subcontractor is in delay, or is disrupting the progress of the works, the contractor will naturally wish to recover any losses incurred from the defaulting subcontractor. Where there is only one subcontractor in delay, and there are no competing delays, it is possible to establish liability with relative ease. However, it is probable that there will be several subcontractor delays occurring at the same time, in which case the contractor will be faced with difficulties in respect of determining the effect of concurrent delays. Only the most careful attention to records by the subcontractor and the regular updating of their programme and progress records will enable the subcontractor to rebut any claims from the contractor for losses resulting from delays and/or disruption to the works by its subcontractors.

If you have any queries regarding the above or if you wish to have a no-obligation discussion with one of our highly experienced consultants to discuss preserving and maximising subcontractors entitlement or require assistance in the preparation of subcontractors claims, please contact matt.greenhalgh@drivertrett.com or call +971 4 453 9031.