As the woes of the construction industry multiply, due to several factors mentioned over the past few months amplified by the International lockdown due to COVID-19, the main contractor’s financial stability is even more precarious than before.

Subcontractors, material and plant suppliers are severely impacted when a company files for business rescue. It has been noted in previous articles that under business rescue, the business rescue practitioner, company staff and newly engaged subcontractors contracted to complete the project, are likely to receive payment first.

Any subcontractor that has not been paid by the main contractor, may terminate the subcontract agreement, provided they have submitted the appropriate notices in terms of the contract.

Do not resume work on site under any of the following circumstances:

• Verbal threats of legal action.
• Notice in terms of the contract to continue work on site if the main contractor is already in breach of contract, due to non-payment of payment certificate and when the main contractor has already been placed on notice in terms of the contract.
• Agree to the business rescue practitioner’s proposal to continue working under the original contract, and they will guarantee payment via the main contractor.
• Agree to the business rescue practitioner’s proposal to continue work on site without agreement on the original contract’s retention sums, original contract’s defects, original contract’s work completed however not certified at the time of the main contractor going into business rescue.
• Agree to continue under a new contract but with the original rates in the Bill of Quantities unless there was an extremely high margin on each and every rate compared to the current prevailing rates in the marketplace.

If however a contractor would like to continue under the business rescue practitioner, they must insist that they are treated as a new subcontractor and therefore the following must apply:

• Not responsible for any defects for work completed under the previous contract.
• Not responsible for the completing of any incomplete items unless specifically measured in the new Bill of Quantities or have received a Contract Instruction from the Principal Agent.
• Not responsible for any contra charges incurred under the previous contract and payable to the main contractor.
• A new contract agreement signed by all relevant parties with a new Bill of Quantities measuring the works to complete.
• Insist on a payment guarantee from the business rescue practitioner.

In these extraordinary times the Association urges all members to proceed with extreme caution, when anyone that you are doing business with is declining to make payment when due and are avoiding any communication regarding the unpaid amounts.

Ross Stembridge | Building Services Manager