Phil Caton is a construction law partner at Aaron & Partners
The cancellation last month of HS2’s northern leg rocked the construction industry, leaving many subcontractors grappling with uncertainty. In these challenging times, businesses must take action quickly to protect their best interests, which should include careful consideration of contractual obligations, termination clauses and audits.
Seeking expert advice as early as possible is always recommended, but there are some essential points that impacted contractors should be thinking about right now:
1. Review contractual provisions
The contracts used in HS2 are often complex, so begin by examining them. They often have customised amendments from the main contract passed down into the subcontract. If subcontractors are unsure about their contractual standing, early expert advice is critical.
2. Understand termination grounds
Pay close attention to the grounds for termination and the handling of the final subcontract account. Main contractors may be able to terminate subcontracts for convenience, given sufficient notice or if the main contract itself is terminated. The legal position hinges on the subcontract’s wording.
3. Consequences of termination
If lawful termination is allowed, subcontractors should understand the consequences, especially any condition precedent that affects payment entitlement during the final account. Timely action is essential to avoid costly repercussions.
4. Conduct a comprehensive audit
Subcontractors should consider performing a comprehensive audit of all the plant, materials, and documents held onsite, as well as offsite materials to determine ownership. Ensure that essential documents, such as health and safety records, drawings, test certificates, and warranties, are up to date.
5. Ongoing obligations
Even if the subcontract is terminated, some obligations may remain, such as handling sensitive data, managing intellectual property, insurance arrangements, and preserving confidentiality. Subcontractors must be aware of any continuing obligations.
6. Back up records
It’s prudent to back up records if they are stored on a centralised system to safeguard against potential decommissioning or restricted access. This ensures vital information remains accessible.
7. Effective communication
Speed is crucial when decisive action needs to be taken. More communication might happen via telephone or in person, so it’s vital to follow up calls with written records or emails to maintain an audit trail.
Three key next steps
In any situation like this, where uncertainty is high, financial implications will be at the forefront of many subcontractors’ concerns. So, what should be the next move for those that have been impacted by the HS2 news? Here are three key steps you should take:
Determine your claim grounds: Start by outlining the grounds for your claims, which could relate to completed work, expected profits, or extra costs due to the sudden project termination.
Gather evidence: Collect all essential evidence, including financial statements, communication logs, contract variations, or any other documents supporting your claim. Speed is of the essence to secure this data in case access to systems becomes restricted.
Engage in constructive dialogue: Before resorting to legal action, consider initiating constructive dialogue with main contractors or relevant parties. Proactive conversations can often lead to resolutions, preventing protracted legal battles from taking root.
A potential silver lining
Amid the uncertainty created by the cancellation, there could, however, be some hope. The prime minister’s commitment to redirect £36bn from HS2 into regional transport projects offers a potential silver lining.
That’s because subcontractors might discover more opportunities in a construction landscape filled with numerous projects, enabling smaller players to bid, win, and execute projects without being overshadowed by major contractors.
HS2 has been firmly in the spotlight for consuming substantial resources over the years. Although the full impact is yet to be seen, scrapping the northern leg could potentially free up construction resources, materials and labour across the sector. On the one hand, this could lead to increased availability and potentially stable costs in certain areas. On the other hand, businesses that had aligned with HS2 work may face sudden financial pressures, and if that is the case they must move quickly to protect themselves.
Source : ConstructionNews