I will be pleased to assist you with your question today.
Pay when paid clauses were outlawed by the 1996 Construction Act. There is a limited exception to the general principle under the Act which provides that ‘pay when paid’ clauses will remain effective in the event that a third Party, or any other person payment by whom is under the contract (directly or indirectly) a condition of payment by that third person, is insolvent.
This position spreads the consequences of an employer’s insolvency among the remaining contractual parties including the main contractor, its sub-contractors and its suppliers. In addition section 113 goes on to provide at sub-section (6) that -
Where a provision is rendered ineffective by subsection 113 (1), the parties are free to agree other terms for payment. In the absence of such agreement, the relevant provisions of the Scheme for Construction Contracts apply.
A company will be viewed as insolvent for the purposes of the Act where it enters administration.
Where the main contractor is solvent a pay when paid clause will be ineffective then. In your case, though, it seems that the paying party is insolvent and as such a pay when paid clause, provided that it is not overridden by any other terms in your agreement with your sub-contractors, will stand.
You should take steps to advise your sub-contractors of the insolvency of the main client and you will wish to refer them to S113 of the Housing Grants, Construction and Regeneration Act 1996 on the question of their retention payments. They may still choose to pursue an adjudication for the outstanding sums however the Act is clear in that such clauses will be operative in the event of the insolvency of a paying party.
I hope that this deals with your question and I wish you well in your endeavours.
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