(NEC3 ECS Option B)
Our Subcontractor has submitted an application for payment which includes a significant sum for made-to-order paving products, which have been paid for in advance, but have not yet been manufactured and therefore are not within the working area.
To help facilitate supplier cashflow, we have previously made payments for materials off-site by way of marked up materials and vesting certificates. However, in this instance as the products have not yet been manufactured, a vesting certificate cannot be suitably provided.
The Subcontractor has provided proof of payment and noted on their purchase orders with the supplier that step-in rights are to be granted to the Contractor in the event of Subcontractor default. However, whilst this has the right intention we’re cautious this does not actually offer the Contractor any security or rights with the 3rd party supplier.
Is there any way that the we can make payment to the subcontractor that provides adequate protection to the Contractor in the event of Subcontractor default?
It looks to me like the answer to your question is probably no.
NEC works on the principle that things change owner when they come into the Working Areas, and therefore that would also be the point you pay for them. That holds good most of the time. There are scenarios where some form of Vesting is a reasonable thing to do, typically for large / high value / bespoke items. If you do do that I’d suggest a good read of the sections around marking by the Supervisor, assuming you want to be paid under the main contract. The Supervisor need not play along here, and also is likely to be unwilling unless there is significant cost on the line and / or the item is hard to obtain.
However, as you rightly identify, that relies on there being something that you could, if things go wrong, go and claim ownership of. You can’t claim ownership of something that doesn’t yet exist.
I agree with Andy.
However, if you really wish to facilitate the Subcontractor’s cashflow, it would not probably be a bad idea for them (the Subcontractor) to assign the benefit of their agreement with their supplier to you (the Contractor), via a Deed of Assignment, subject to any restriction within the terms between supplier - Subcontractor.
Yeah, you could do that, but we are getting into complex contracts here, for some paving. Is the value really going to be proportionate to the effort involved and the commercial risk taken?
Again, if you really wanted to, I guess you could secure this by a bond. Again, that can be done (at least in theory), but I think it would need to be for very serious money before you considered it. I’m also not sure that the bond markets would be very keen.