FAQ's Nominated Selected Subcontract Agreement

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Question 1

Why does the N/S Agreement require the n/s subcontractor to have to stipulate in his tender that a Payment Guarantee is to be provided by the contractor? Should this not be a given requirements as stated in the Principal Building Agreement?

Ref: N03.001

Answer

In the past it has not been customary or thought necessary that the contractor (no matter how financially stable he may appear to be) should, in turn, provide security to the n/s subcontractor. Correctly this unfair practice is addressed in the JBCC contract. However there is much debate on the quantum of cover that is seen as being reasonable with the JBCC setting a standard 10% for such a guarantee. For better or worse I have analysed the issue and have come to the conclusion that the cash flow to the n/s subcontractor represents the highest unsecured risk and therefore should be the focus in determining the quantum of such guarantee. In addressing the above I am of the opinion that the anticipated two highest contiguous projected cash flow months to the n/s subcontractor should form the basis of the guarantee which would in virtually all cases exceed the 10% provision of the n/s contract sum. However this is not a practical solution is it would generally be impossible for the contractor to make any realistic provision in his tender for the sum total of n/s payment guarantees he would be required to issue

 

Question 2

Could you please explain (1) The “builder’s lien” and in what instances can the contractor exercise it. (2) Why is it that a lien cannot be exercised by a n/s subcontractor? (3) Can a party exercise a lien over State property?

Ref: N03.002

Answer

A1:
In law the contractor is given a right to keep possession over property (the building site and what is built thereon) belonging to another (the employer) until the debt owed (outstanding payment certificate) has been met. This is necessary as he would not be able to remove the "added value" (the works) and sell it in execution of the debt. Therefore where the contractor waives his lien he is giving up a fundamental right to his occupation of the property to the exclusion of the owner thereof. Before the builder can take such action there must be default on the employer's part in relation to payment ie a duly issued payment certificate is not honoured or a payment certificate is not issue when one is due. The contractor must give notice to the employer to perform. Where this does not result in payment the contractor can act by closing site access to the employer and his representatives by locking the access gate. The contractor must remain in continuous possession of the site to retain the lien

A2:
A n/s subcontractor invariably cannot exercise a lien because, in law, multiple liens cannot be exercised over the same property

A3:
In law a party, organisation or company cannot exercise a lien over State property