Sub-Contract Final Account

On a project of 45 days or more, where the sub-contractor will normally be entitled by statute to payment by instalments, stage payments, or other periodic payments, there will usually be a contractual procedure to settle who owes whom how much after payments made along the way are taken into account.

This will not always be the last payment to be made, as at least part of the retention fund will be held until the end of a defects liability period, but it will confirm any adjustments to the Sub-Contract Sum – if one was agreed – and to the Completion Date.

The final account process may be relatively routine if the project has proceeded to time and to budget, but if either or both of the Sub-Contract Sum or the Completion Date have been exceeded, then a high-stakes argument can ensue to settle where the financial burden of this falls under the Sub-Contract.

For much of the project, unless there are sectional completion dates, there will be the possibility of acceleration to make up for any slow progress.  In the final stages of the project, however, any delay to the original Completion Date is either covered by an extension of time or not.  If it is not, then non-completion may already have been certified, and liquidated and ascertained damages deducted from stage payments.

The result of this can be an argument at final account stage where both parties to the contract are claiming substantial payments from the other, on the basis that the other is primarily to blame for the overrun on the Completion Date and the matters that led to this overrun.

Just as at the outset of the project, when the parties are negotiating the terms of the Sub-Contract, the main contractor will be concerned to keep the position under the various Sub-Contracts in line with what he can achieve under the Main Contract.  So if he is faced with the deduction of liquidated and ascertained damages under the Main Contract, and is not able to defeat the claim, he will look to pass on the liability to one or more of his Sub-Contractors.  The Sub-Contractors who are targeted may find themselves arguing not only with the main contractor, but with the Employer and several other Sub-Contractors as well.

In an ideal world, a claim for extra time and money for a project that has overrun will have been prepared step-by-step as the project progressed.  The main contractor will then have been able to notify in turn the employer or any other sub-contractors who may have been responsible for the delay and the extra cost.  If the employer then issues a certificate of non-completion and seeks to start deducting liquidated and ascertained damages, a defence and counterclaim for an extension of time and loss and expense will be ready to run.

In the real world, where the programme for the project has been disrupted, the focus will often have been upon re-arranging activities and tackling problems.  This can result in the sub-contractors arriving at final account stage with a large global claim whose constituent parts are not fully documented.  As there is an evidential burden to discharge when bringing a claim, and often also contractual condition precedents to meet, this can leave sub-contractors at a grave disadvantage when faced with an employer and a main contractor who can deduct liquidated and ascertained damages in the absence of a proven entitlement to an extension of time.

Although it is an extra cost that sub-contractors in particular may feel they can do without, it is often worthwhile retaining someone to construct a claim carefully step-by-step as the project progresses.  The danger is otherwise that one can arrive at final account stage having accrued expenses of seven figures or more, only to find the entire claim rejected and a claim of similar magnitude asserted in liquidated and ascertained damages by the employer.  The latter claim requires little proof other than that the original Completion Date has been exceeded and no entitlement to an extension of time has been proven.

We can help either by monitoring the claims as the project progresses and ensuring that they are adequately documented in accordance with the contract, or if need be by responding to a claim for liquidated and ascertained damages and presenting evidence as completely as possible in the circumstances of entitlement to an extension of time and loss and expense.

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