Project owners must take control over how subcontractors are paid

It is not unusual for main contractors to practise "pay when paid" clauses with their subcontractors and suppliers ("Company steps in to cover arrears in pay dispute issue"; Dec 23, 2016).

While there are good main contractors who pay their subcontractors on time, without waiting for funds from the project owner, many do not.

To protect workers from delays in payment, project owners should adopt the system of nominated subcontractors rather than domestic subcontractors.

Domestic subcontractors are chosen by the main contractor, and the project owners have no control over how they are paid.

Nominated subcontractors, on the other hand, are chosen by the project owners.

Though the main contractor still handles their pay, they can complain to the project owners if the main contractor defaults.

The project owners can then withhold payment to the main contractor and use the money to pay the subcontractors instead.

Subcontractors tend to have cash flow problems.

Being small and medium size, it can be difficult for them to get capital access from the banks.

When subcontractors go bust, it is usually because they run out of money, not because they are out of work.

When bidding for a job, it is crucial for them to evaluate the cash flow impact of payment terms and retention/release provisions.

If possible, they should place a lien on the non-payment clause with the main contractor to protect their interest.

Francis Cheng

A version of this article appeared in the print edition of The Straits Times on January 05, 2017, with the headline 'Project owners must take control over how subcontractors are paid'. Print Edition | Subscribe