It has been almost 7 years since the amendments to the Construction Act* prohibiting so-called ‘pay when paid’ clauses but that does not mean they have gone away. Many Main Contractors continue to use standard terms and conditions that link retention release for their Sub-Contractors to retention release in the Main Contract, in contravention of section 110(1A) of the Construction Act.
Despite the Courts having held that such a contractual term is “inoperable and inadequate”** many organisations either do not know that such a term is unlawful or they are aware that it is and are gambling on their Sub-Contractors not being aware.
The word ‘gambling’ is not chosen lightly. If a retention provision is in breach of the prohibition then it may be that a court or adjudicator determines that the only reasonable conclusion is that the Main Contractor never had any right to retain the sums in the first place. That would force the Main Contractor to release any retention monies withheld immediately and, potentially, interest from the point that they were originally retained: a costly wager.
The risks are therefore clear and few Main Contractors would want to be in a position in which they withheld no monies whatsoever from their Sub-Contractors, particularly when they are likely to be owed retention monies from the Employer under the Main Contract.
If you are a Main Contractor and you are unsure if your standard terms and conditions are unlawful or, if you are a Sub-Contractor owed retentions, then contact Jan Rzedzian for further information.
*Part II of the Housing Grants, Construction and Regeration Act 1996 as amended by the Local Democracy, Economic Development and Construction Act 2009.
**RMP Construction Services Ltd v Chalcroft Ltd  EWHC 3737 (TCC)