NEC3 - ECS Option A.
We are a Contractor and have a Subcontractor who has been employed to install a specialist distribution machine. Without it the clients warehouse doesn’t perform properly.
We have had a number of issues with the machinery and more than once had to pay monies we don’t agree with to get the machinery handed over.
We are now at the last knockings, the only thing keeping us on site is the final handover of the machinery, that isn’t working as it should. We can still achieve completion with the submission of the O&Ms as the last pieces are being classed as defects. The client isn’t happy as they want their warehouse working to full capacity and are taking Delay Damages from us every day.
The Subcontractor knows that we cannot achieve completion without their O&Ms and has openly emailed us saying they will not send us the O&Ms until we pay them what they want.
The monies they are after are the Compensation Events that we haven’t yet accepted and believe are inflated and sometimes fabricated. They have also stated they will not accept any contra-charges whatsoever on the account despite their lack of progress, missing programme, etc.
Other than damages which are minimal on this subcontract, have they breached the NEC contract by doing this? Surely what they are doing is blackmail and against the law?
I wouldn’t go as far as to say they are blackmailing you in a legal sense, they have threatened a course of action but unless this comes with menace in terms of a threat of violence or damage to property for example their conduct is not criminal. If you can prove they are inflating and fabricating their CEs then they may be committing acts of fraud or misrepresentation which you could recover damages for at common law i.e. outside the contract.
The fact that the PM (assuming you’re on the ECC) is refusing to certify Completion and deducting damages gives you sufficient rights to do the same to the Subcontractor. Further, non-provision of the O&Ms is a Defect which should be notified under clause 42.2 which firstly gives you another reason not to certify Completion and secondly will eventually give you the right to assess the cost of having the Defect corrected by others (clause 45.1). If you are holding retention from the Subcontractor their actions mean that release will be delayed as Completion is being delayed.
It would be unusual for a Contractor to not have included Z clauses in the subcontract which would open the door to being able to recover losses from your main contract as contra charges, however without this the subcontract delay damages are an exclusive remedy for the Subcontractor causing delay.
Under the ECS you have the right to assess CEs if you don’t agree with the Subcontractor’s quotation. You should do this and establish a final account position from which to negotiate with the Subcontractor a settlement. Unfortunately they’re not playing by the rules and it seems like your subcontract may not have the teeth in it that you need to coerce them to play ball. Ultimately you need to look at this issue commercially. If paying them what they ask for, no matter how galling this is, limits losses in the main contract and protects your reputation with the Client then you should consider this course of action. Oh and make sure you let everyone know about this Subcontractor’s aggressive tactics, it’s not acceptable behaviour under the NEC or any form of contract.