The scandal of construction, according to the Huxtable Report (1983) is: the persistent and continuing imposition as a matter of deliberate policy… of onerous and unfair subcontract conditions.
An ideal subcontract, said the Report, was which set out the rights and obligations of the subcontractor as clearly as possible, was closely aligned to the main contract [agreed] and:
- provides a fair balance between the parties’ interests
- enables the client to get the best out of the specialist subcontractor
- ensures the subcontractor is fairly rewarded for its work.
We have made progress since the Report on clarity of rights and obligations as well as introducing subcontracts which reflect the standard form main contracts. However…
In Jim Mason’s paper reviewing the progress since Huxtable, he mentioned a ‘rogues’ gallery’ of terms which subcontractors should look out for. These include some of my personal showstopper ‘favourites’:
- Lack of right to suspend for non-payment
- Lack of right for subcontractor to cancel the contract
- Wide grounds for the contractor to terminate (at will)
- Wide rights of set-off.
Mason’s research added a few more rogues to the gallery:
- Rights for the main contractor vary the contract without needing the subcontractor’s permission
- Extensions of time and additional money limited to any recovery under the main contract
- Conditional payment provisions to circumvent the prohibition of pay-when-paid clauses
- Increasingly lengthy payment periods for subcontractors.
Cheated into oblivion
There are very many cases where a competent well-managed specialist [subcontractor] is simply cheated into oblivion by the onerous conditions and procedures and behaviour of the Main Contractors under which it has been obliged to workThe Corruption of the Commercial Process, Huxtable (1983)
Mason decided that 50% of the current clauses in his top 10 rogues’ gallery were showstoppers ie they appeared ‘so manifestly one sided and unquantifiable from the specialist [sub]contractor’s viewpoint as to be hazardous.’ The remainder of this top 10 were more manageable although still risky as they require guesswork and predictions as to the behaviour of a specific main contractor on a specific project!
In my research I have found one of the major barriers to move away from complex paper-based one-sided contracts is the lack of trust and the unprofitability of specific tiers within the industry. Trust may be one of the solutions to this vicious contracting cycle. But this get us back to the question: which comes first – trust or simpler contracts?
What should you do?
If you are a subcontractor: Take control of your subcontracts. Don’t allow main contractors to bully you into bad contracts, by relying on your apparent lack of bargaining power. Decide the terms you’d like and be prepared to walk away.
If you are a contractor: Don’t rely on your subcontractors as contract fodder or trade capital. Adopt a strategy of collaboration rather than every-business-for-itself.
If you are a client: as Huxtable suggested, take an interest in everyone working on your project as your success depends on their expertise.
Paper: Mason (2010) Corruption of the Commercial Process Revisited. Available online