What happens to outstanding payments due and retention held if a sub contractor decides to terminate an NEC 4 sub contract due to non payment by the main contractor.
Does interest still also be applied to outstanding payments once the contract has been terminated.
Also what is the position on defects period once contract is terminated, can main contractor still hold the outstanding retention currently held.
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This looks like an NEC4 ECS form of contract.
If the Subcontractor is terminating due to non payment, I presume that this would relate to reason R16.
The Termination Table provides that reason R16 leads to Procedure P1 and P4 with the Amount Due being A1, A2 and A4.
Amount A1 includes 'any amount retained … ’ so retention monies would be paid to the Subcontractor.
Amount A1 further states ‘an amount due assessed as for normal payments’. Any interest due to ‘non-payment’ is calculated in accordance with sub-clause 51.2. The only difficulty with this is that the amount of interest is assessed based on the date that the ‘late payment’ is actually made, with the assessed amount included in ‘the first assessment after the late payment is made’. The termination certificate ends the cyclical assessment procedure, with the only further assessment made being a final assessment 14 weeks after the termination certificate. Assuming this includes the ‘late payment’ amount, there is no further assessment in which to actually pay the interest, notwithstanding that the assessment procedure has effectively ended at that point anyway. You would hope that the Contractor makes a ‘forecast’ assessment of interest as part of the final assessment, but, contractually, that is not how it reads.
With regard to Defects, termination has effectively made it impossible to achieve Completion, so a defects correction period and defects date cannot be determined. As retention monies are required to be paid, then you would have to rely on common law rights for both patent and latent defects. The Contractor may use the right to ‘set off’ with regard to ‘obvious’ defects, in relation to their assessment under bullet point 3 at sub-clause 93.1, although this would most likely lead to dispute, especially as the Contractor is effectively ‘at fault’ for the termination, thereby not providing the Subcontractor with an opportunity to remedy any such issues.
It is a bit of a messy situation, but termination is rarely straightforward at the best of times.
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