rics contract practice guidance note

A more formal arrangement is for the employer or main contractor to enter into a letter of intent with the subcontractor. Should the main contract and subcontract be subject to the same dispute resolution procedure? RICS guidance note (GN) Document that provides users with recommendations or approach for accepted good practice as followed by competent and conscientious practitioners. Article 5 states that disputes will be referred to arbitration. It does not state how disputes will be resolved (e.g. For example, where the main contractor is registered in England and the subcontractor is registered in Spain (and the subcontractor has substantial assets in Spain), the main contractor could decide that a non-exclusive jurisdiction clause would be helpful to it because the clause could ensure that the English courts have jurisdiction (which would be convenient for the main contractor if it decided to commence legal proceedings against the subcontractor), but with the option to commence proceedings in Spain (which would be convenient if the main contractor required direct access to the subcontractor's assets there). Where the main contractor and the subcontractor agree to submit disputes to the courts of a particular jurisdiction (e.g. Further guidance on risk mitigation regarding subcontractors is set out in Appendix 4. The legal opinion should cover issues that are relevant to the transaction, for example: Subcontracts usually contain provisions that deal with specific issues that may arise with the subcontract works. If the main contractor takes away or varies the subcontract works, this would be an infringement of that right and a breach of the subcontract. This has some degree of certainty (disputes will be heard in specific jurisdiction referred to in the clause), but it also has some flexibility (disputes can be heard in another jurisdiction if need be). in the event of insolvency, ensure that the subcontractor enters into a novation agreement in a prescribed form. The provisions often require the main contractor to give the subcontractor notice of the breach and allow a period of time to cure the breach. In some cases, a jurisdiction clause may be drafted so that one party is subject to non-exclusive jurisdiction, whereas the other party is subject to exclusive jurisdiction. in Spain), would be adequate. Consider including the right for the main contractor to terminate the subcontractor's employment for convenience or at will. Where the subcontract states that liquidated damages - a fixed/pre-agreed sum per day or week of delay - apply, there are three key issues: The difficulty of accurately calculating liquidated damages in advance is one of the reasons why many subcontracts do not contain liquidated damages provisions: In all cases, carefully consider whether it is appropriate for the subcontract to contain a liquidated damages provision. This note offers practical guidance for members in England and Wales who undertake the role of contract administrator. An outline is provided here. JCT DB Sub 2016 states that the governing law is the law of England (clause 1.10) and that the English courts have jurisdiction (article 6), although this jurisdiction is subject to any rights the parties may have to refer a dispute to adjudication or arbitration. 281 0 obj <>stream Appendices feature useful checklists and also information regarding office administrative procedures. The scope and type of the subcontract works will generally give rise to specific considerations that should be addressed in the subcontract. endstream endobj startxref This raises a number of issues. This also has some drawbacks, but if the letter of intent is properly drafted (and, where possible, constitutes a contract) it can be useful, for example in order for the subcontractor to carry out early design services in return for payment. In many cases it will not be appropriate, and it is of course subject to negotiation. In those circumstances, the employer should ensure that it has the right to novate the order to others (e.g. The enforceability of decisions made by the courts. For example, clause 8.1 of JCT DBSub 2016 requires the main contractor and subcontractor to give serious consideration to any request made by the other to refer a dispute to mediation, although it does not envisage the use of a DRB. the choice of law and the enforceability of decisions, awards and judgments relating to the subcontract. The fifth option is really a variation on the theme of the third and fourth options: instead of the employer being granted step-in rights or the right to enter into a novation agreement, a replacement main contractor is given these rights. the extent of the subcontractor's liabilities after termination. The third option is for the employer to have the right to step into the subcontract in place of the main contractor, so that the subcontractor continues with the subcontract works for the employer. Example 2: If the subcontractor's failure to complete on time is limited (e.g. That solution also has issues, however. Neither JCT DB Sub 2016 nor NEC4 ECS include provisions that deal with novating the subcontract. NCE4 ECS does not envisage the use of mediation or a DRB. If the entry is left blank, the courts will have jurisdiction. In most cases, the employer will appoint a replacement main contractor to complete the main contract works and the replacement main contractor may want to step into or novate existing subcontracts. However, even if the main contract conferred this right, the employer may face two difficulties because a direct payment by the employer to the subcontractor: The employer can mitigate these risks by: The inclusion of these risk mitigation measures would be a matter of negotiation between the employer, the main contractor and, to an extent, the subcontractors. For example, one of them could simply take the risk of fluctuations against a pre-agreed baseline exchange rate, or they could each take a share of this risk. Where the fifth option is used, the subcontract and any relevant collateral documentation should be drafted to allow the employer or replacement main contractor to exercise the right to step or enter into a novation agreement. Although it is not essential for an overseas company to execute the subcontract as a deed, it is preferable. If the subcontractor does become insolvent, the issues to consider and the actions to take will depend on the circumstances. The second option depends on the laws of the territory in which the overseas company is incorporated, but the main contractor may not be familiar with them. Further guidance regarding subcontractors is set out in Appendix 5. There is some overlap here with the right to omit works, so the subcontract should contain clear wording.

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