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Scott Taylor
Scott Taylor, Solicitor
Category: UK Law
Satisfied Customers: 41
Experience:  18 years practice on the High Street and in the City of London
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Under the construction act are we liable to pay retention

Customer Question

Under the construction act are we liable to pay retention release to our sub contractors when our client has gone into administration, we are a sub contractor to the main contractor and we have sub contracted some of the works withholding retention on them and we need to know if we are correct not paying the retention release. If we are correct would it be possible to let us know which part of the construction act we should be looking at.
Submitted: 1 year ago.
Category: UK Law
Expert:  Scott Taylor replied 1 year ago.

Dear Customer,

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.

Please remember to rate my reply so that I can close off your question and receive my fee.

Kind regards


Expert:  Scott Taylor replied 1 year ago.

Dear Customer,

Do you still require assistance with this question? If not, please remember to rate my reply. Ratings are an important part of the working of this site without which the various experts do not receive their fees for the help they provide.

Kind regards