Problem: I hope you may be able to help me. My company is a specialist mechanical contractor, having started it up in 2009, and although it is still quite small in terms of turnover, we have a solid client base that is responsible for a significant proportion of our work.
Early in 2013 the company was approached by a large (and well known) M & E contractor, and were asked if we would like to quote for a few jobs for them. Effectively, we would be working as a sub-subcontractor, something we had not done before. We subsequently quoted for 5 projects and, at the time, were thrilled to have been successful with one very large project as well as 2 smaller projects. We were then sent contracts for all 3, and soon after commenced work.
However, almost from the outset, we encountered problems in getting our applications for payments properly valued and in getting paid, which had an adverse effect on cash flow. The 2 small contracts we managed to complete, but we got to the stage with the large value contract where we were no longer prepared to finance anymore work and we pulled off site (February 2014). Shortly after stopping work, we were sent a letter from the M & E contractor stating that we must return within 7 days or they would employ others, which we replied that until payment in full was received, we would not be returning. A further letter was then received from the M & E contractor stating that we were in “repudiatory breach of contract”.
I have since spoken to a solicitor from our federation’s helpline, and it would appear that despite being owed tens of thousands of pounds, it is my company that is in the wrong for pulling off the site!
Kerry, Lutterworth
Response: Hello Kerry. By effectively walking off the job, you have put your company in a very vulnerable position that could have serious consequences.
Until May 1998, unless it was an expressed term in the contract, no party to a construction contract had the right to stop work part-way though a contract due to non-payment. The introduction of the Housing Grants, Construction and Regeneration Act changed that, which gave a contracting party the right to suspend performance due to non-payment. However, there are 2 crucial requirements for a party to validly suspend performance. The first is that the party intending to suspend performance must issue a 7 day notice to warn the other party that suspension may happen if payment is not forthcoming and secondly, there must be monies contractually owed.
By abandoning the works (which is the legal definition for stopping work without just cause), it is open for the M & E contractor to allege wrongful repudiation, and to accept the breach and bring the parties’ obligations to an end. A repudiatory breach is a breach that the law regards as sufficiently serious to justify termination.
The consequences of your breach means that the M & E contractor can pursue your company for all of its losses that flow from the breach and from experience, this will probably be a significant claim. My advice is to seek professional advice as quickly as possible.
© Michael P. Gerard MSc, PGDipLaw, PGDipBar, FCIOB, MCIArb, MAE
The advice provided is intended to be of a general guide only and should not be viewed as providing a definitive legal analysis.
Author background
Michael is a Barrister, Chartered Builder, Registered Adjudicator & Accredited Expert in quantum and planning matters. He is Managing Director of Michael Gerard & Co www.michael-gerard.co.uk, a company of chartered building consultants and quantity surveyors who provide a specialised service in the areas of construction law, quantum, programming, business recovery and insolvency support to the construction industry. Michael is also a practising solicitor and consultant with Silver Shemmings LLP.