With so much uncertainty, it is essential for you - as a subcontractor - to understand your rights, should your main contractor become insolvent. This post will highlight the key considerations.
But first, here are the early warning signs of main contractor insolvency so that you know what to look out for…
- A rise in the number of work defects
- A decrease in labour on site
- The benefit of the building contract being assigned by the main contractor to a bank or another creditor
- Subcontractors not getting paid by the main contractor
- Rumours in the press about the declining financial position of the main contractor
Review your subcontracts
Most building contracts include provisions over the suspension - or termination - of work following supply chain insolvency. But don’t worry - they should provide you with a formal notification prior to any action taken. To get prepared and to ensure you know your rights over the suspension or termination of work, you should review your subcontract.
This way, you will be aware of the correct procedures so that your main contractor doesn’t take the wrong course of action. You are then able to seek further advice, should you want it, regarding any uncertainty over the suspension or termination process.
Check your sub-subcontract agreements
What would happen to your sub-subcontracts should your contract be terminated? Identify and review what is stated in your subcontract regarding terminations, payments and other costs. It is likely that all completed works prior to the termination will require payments. It could be that your sub-subcontracts are automatically terminated at the time of termination, or within the notified period. So, it is important to assess the wording of your contracts.
Understand the transfer of title provisions
Your subcontract should include details of the transfer of title provisions. Should the main contractor become insolvent, the subcontractor’s right to take materials off-site will ultimately depend on whether or not it retains title to them.
So, consider at what stage the title to materials is passed within your subcontract. It will be one of the following...
- When materials are delivered to the site
- When payment is processed
- When the materials are incorporated into works (this is usually when the materials are then passed from the subcontractor to the main contractor)
Assess your rights to the equipment
Similarly to assessing the title of materials, you should also ensure you understand your rights to the tools and equipment used on site. If you retain title to them post-insolvency, then you have the right to recover your equipment.
However, some situations may result in the subcontractor unable to access to the site to recover their items. In this case, it is recommended that you seek an injunction against the site owners. An injunction is a legal solution in the form of a court order that will compel the site owner to allow you access to the area.
Seek financial advice
The main contractor typically retains 3 to 5% of the value of the total work value. This is held until the subcontractor completes their contracted work. However, if supply chain insolvency occurs, you may have to seek expert financial advice regarding your entitlement to this retention money.
As a subcontractor, you may have prepared designs for your work. The main contractor has the right to use these designs to complete their project, providing the copyright in them has been transferred to them. If it hasn’t, the main contractor will have to obtain a copyright licence from you in order to complete the work. So, review your subcontract carefully regarding the copyright of designs.
McAlister & Co
At McAlister & Co, we offer a comprehensive range of services, including financial advice for subcontractors. Working for a company who become insolvent can be a distressing and uncertain time, but our expert team are on hand to provide support. So, contact us should you have any worries or concerns over your situation.