The client has advised today that a contractor has shut all of his sites because they are unable to pay their subcontractors. The contractor submitted a valuation for works completed up to 31st March last week. Should the employer issue a payment notice to the contractor or are all payments suspended as per clause 8.5.3.1?
Sandra
If the Contractor is Insolvent as defined in Clause 8.1 then the Employer may terminate the employment of the Contractor under Clause 8.5.1. Clause 8.5.3 makes it clear that even if the Employer does not serve the termination notice then clauses 8.7.3 to 8.7.5 then apply; and these clauses make it clear that no further sum becomes due until the completion of the Works by the Employer following termination.
However if a sum had already become due before the Insolvency the second part of the first paragraph of Clause 8.7.3 may apply to sums that are already due and not become finally due. In relation to these I would make sure that a Payless Notice is issued to previous Interim Payments (and not just the 31st March payment) to the extent that they have not been paid.
You need to check the Due Dates and the Final Dates for Payment against the date of the Insolvency (if that were to occur) to make sure you understand what further notices may be required.
Having said that I think it would be prudent to issue a Payless Notice against the 31st March Application that just says “No payment is due because of the Insolvency of the Contractor”. It avoids the risk of anyone starting a smash and grab adjudication.
Its a complicated area and you should get some formal advice.
Best
Mike
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