Can I terminate my subcontract if my main contractor does not pay?
Only if your subcontract gives you that right and you follow its notices exactly; otherwise, the lawful step is usually to suspend work.
Updated: . By Jack Butler-Kettle, Construction Claims Consultant.
The answer
Some subcontracts let you terminate for non-payment. They usually need a first notice naming the default, a period for your main contractor to pay, then a second notice to terminate. Miss a step and your termination may itself be a breach. Your main contractor could then claim its cost of finishing your work from you. Whatever your subcontract says about termination, you have a right to suspend under section 112 of the Housing Grants, Construction and Regeneration Act 1996. It applies when a sum due is not paid in full by the final date for payment, and no valid Pay Less Notice was given. You must first give at least 7 days' written notice of your intention to suspend, stating your grounds. Suspension puts pressure on your main contractor without ending the job. Either way, never simply walk off site. Check the sum was really due, and serve every notice by the route your subcontract names. Keep records showing non-payment was the only reason you stopped. Whether to terminate is a question for your solicitor.
Example
Illustrative example. The scenario and figures are invented.
The facts
A scaffolding subcontractor is owed £48,000, 12 days past the final date for payment, with no Pay Less Notice given. Its subcontract allows it to terminate if a sum stays unpaid 14 days after a default notice. The contracts manager wants the gangs off site.
What happens
- The application, the dates and the notices are checked against the subcontract, and the £48,000 is confirmed as due.
- The solicitor advises serving the default notice rather than walking off.
- The default notice goes by the route the subcontract names, and the 14 days go in the diary. The gangs keep working.
- The main contractor pays the £48,000 in full on day 10 of the notice period.
The outcome
The money arrives with no walk-off and no termination, and the job carries on. Had the gangs left on day 12, the main contractor could have called it a default and claimed its cost of finishing the work.
To have your right to suspend or terminate checked, and the notice route set up before anyone leaves site, see our Termination Prevention service.