We are a main contractor using the NEC3 Engineering and Construction Subcontract (ECS) option A (priced subcontract with activity schedule) for our subcontractors. The defective workmanship of one of our subcontractors has been revealed during commissioning of some pumps, which is likely to cause substantial delay under our main contract and result in damages. The nature of the defect meant it had to be corrected within 72 hours (as stated in the subcontract data) but this was not practical. The subcontractor was unable to provide temporary pumping arrangements while it took additional time to correct the defect, so we put these in place until the permanent pumps could be reinstalled. We did this on the basis that cost can be recovered under clause 25.
The employer has reduced the certified amount in the latest assessment period as the activities previously deemed complete are no longer complete, in accordance with the final paragraph of clause 11.2(27). This results in a negative payment certificate, which we would have to recover as a debt. Some of this amount would correct itself naturally as the defect is corrected and the work deemed complete once again. However, the cost we have incurred must still be recovered. As we were nearing completion, we have paid 90% of the subcontract value. The subcontractor is unwilling to credit the debt whereas we seek recourse under the subcontract in the first instance. What would you advise here?
There is no clear-cut answer to this question unfortunately. At the moment you are relying upon the subcontractor to enable you to get your work completed, and there is a practical risk that the subcontractor may decide to walk away. You therefore need to factor in how you will manage that if it occurs. It may be difficult, if not impossible, to find somebody else to sort this matter out. Therefore, applying your contractual rights may not be the best course here.
You refer to the time needed to correct a defect within its defect correction period. This only comes into play after completion of the of the subcontract works, see clauses 43.2 and 11.2(2), so we assume the subcontractor has already achieved completion. If so, it is doubtful you will be able to reduce the price for work done to date in the way you suggest. Instead, if a defect occurs after completion, clauses 43, 44, and/or 45 set out how you deal with it and what recovery you have. Given these clauses set out your remedies, it highly unlikely you would be able contractually to reduce the price for work done to date or invoke clause 25.
If the subcontractor has not achieved completion, it becomes even more complicated. That would mean the defect correction period is irrelevant and the subcontractor is not obliged to achieve completion until the subcontract completion date (see clause 30.1). If the subcontract completion date has not yet passed, it could be that the subcontractor is not, as yet, in breach of the subcontract, unless of course you have relevant sectional completion dates (see X5) or key dates (see clauses 11.2(9), 30.3 and 25.3). And, if this defect means that the subcontract completion date is not met and you have option X7 in the subcontract, it could mean all you will be able to deduct because of the delay would be the delay damages in the subcontract. However, the good news is that you probably could, in this scenario, temporarily reduce the price for work done to date until such times as the defect has been corrected.
When things get this complicated, we always recommend you sit down with all the parties and discuss how it can all be dealt with. With a little give and take on both sides, you may come up with an agreement that everybody can live with. Otherwise you could end up with a dispute under whichever dispute option you have chosen. That is not to be entered into lightly and we always recommend you try to reach an agreement you can live with rather than start that process. Unfortunately, whether you like it or not, it will cost all involved a lot of money and a lot of staff time, both of which probably would be better deployed in reaching an agreement.