In the first of a new series of questions & answers, readers can pose questions to the legal team from Bond Dickinson. This first series includes questions about the impact of building information modelling (BIM), design responsibility and main contractor insolvency. If you have a question to ask please send it to questiontime@specfinish.co.uk
Q: BIM is beginning to impact upon construction procurement. What is the most appropriate
form of contract to use with BIM projects?
A: No one contract will be better than another when you are using BIM – it is intended to work with any contract or professional appointment. The introduction of BIM into a construction project is by way of a BIM protocol. This is a document which is incorporated into an existing contract with a minimum amount of amendment to that contract. You can look at the Construction Industry Council BIM protocol and also some examples of amendments to common contracts and appointments on the BIM task group website at www.bimtaskgroup.org
BIM is also intended to be used with professional appointments and down the supply chain and it is as important that it is used by SMEs as it is by major contractors. What is most important therefore is to understand how BIM works, what the protocol looks like and how it will fit into existing contracts.
Q: Who bears the responsibility for the design of the drywall system if a proprietary system is specified in tender documents?
A: Check the sub-contract carefully to determine whether you attract liability for the design of any proprietary drywall system specified in tender documents by the contractor.
Here are two examples:
NEC3 short sub-contract
The sub-contract works information states the parts of the works you design. If it is not stated that you design the drywall system, then you will not be liable for its design. If it is stated that you do design the drywall system, then you will remain liable for its design to the contractor even if you sub-sub-contracted the design to the drywall supplier.
JCT minor works sub-contract with subcontractor’s design
The contract explicitly states the elements of the works that you design and you are liable for those elements. Usually the proprietary wall system would form part of the contractor’s requirements and you would only be responsible for installation rather than design.
Q: If a main contractor becomes insolvent who can claim ownership of materials that have been
delivered to a subcontractor and are intended for use in the works but have not been paid for?
A: This will depend on the terms of the contracts in place and whether the materials have been incorporated into or affixed to the works.
It is common for suppliers and subcontractors to include retention of title clauses in their terms and conditions, stating that ownership of materials will only pass to the contractor when the subcontractor has been paid. However, if the materials have been incorporated into or affixed to the works, the retention of title clause will have no effect and the materials will
become the property of the employer (regardless of whether or not they have been paid for).
In the case of unfixed materials, ownership will only pass to the employer once the employer has paid for the goods, unless the contract states otherwise. Where unfixed materials have been paid for by the employer, but the subcontractor has not received payment from the main contractor, and the main contractor becomes insolvent, ownership will not pass to the employer as the main contractor did not own the goods in the first place.
The letter of intent will set out the terms under which you are agreeing to do whatever it is that the letter requires. For example, to enable you to place orders for materials or authority to carry out certain preliminary works or to proceed with the main contract works but subject to a maximum expenditure cap.
There may be a requirement in the letter of intent to enter subsequently into the contract but this would only work if all the main terms of the contract were agreed. Alternatively, the letter of intent may include, either explicitly or by reference, many of the terms of the contract. However, as with all these things, it will depend on the precise wording of the letter of intent.
In the absence of specific wording though, you will not be bound by the contract that was offered to you until all the key terms are agreed. In the meantime, you would be bound by the terms of the letter of intent.
Q: I’m a subcontractor working on a number of contracts for the same subcontractor. On one contract the main contractor is insolvent and payment is being withheld until the subcontractor receives a payment. Is this legal?
A: Ordinarily, ‘pay-when-paid’ clauses in construction contracts are ineffective and are not legal under current legislation. This is because a ‘pay-when-paid’ clause allowed a party to pass the risk of non-payment down the contractual chain eg the subcontractor’s entitlement to payment was dependent on the contractor receiving payment from the employer. However, there is an exception to this rule and it is when the third party making the payment is insolvent. So, if your sub-sub-contract contains a ‘pay-when-paid’ clause and the contractor is insolvent, it will be effective and thus legal for the subcontractor to withhold payment.
Ask your Specfinish lawyer has been prepared by the construction & engineering team at Bond
Dickinson LLP. www.bonddickinson.com
