Phil Caton is a construction law partner at Aaron & Partners
Last month’s cancellation of the northern part of HS2 rocked the construction industry, leaving many subcontractors facing uncertainty. In these challenging times, companies must act quickly to protect their interests, which should include careful consideration of contractual obligations, termination clauses and audits.
It is always recommended to seek expert advice as soon as possible, but there are some essential points that affected contractors should be thinking about right now:
1. Review the contractual provisions
The contracts used on HS2 are often complex, so start by looking at them. They often have custom modifications from the main contract passed on to the subcontract. If subcontractors are unsure of their contractual position, early expert advice is critical.
2. Understand the reasons for the termination
Pay close attention to the reasons for termination and the management of the subcontract’s final account. Prime contractors may terminate subcontracts for convenience, with sufficient notice, or if the prime contract is terminated. The legal position depends on the wording of the subcontract.
3. Consequences of termination
If legal termination is permitted, subcontractors must understand the consequences, especially any conditions precedent that affect the right to payment during the final account. Timely action is essential to avoid costly repercussions.
4. Carry out a comprehensive audit
Subcontractors should consider conducting a full audit of the entire plant, materials and documents maintained on site, as well as materials off site to determine ownership. Ensure essential documents such as health and safety records, drawings, test certificates and warranties are up to date.
5. Obligations in progress
Even if the subcontract is terminated, some obligations may remain, such as the management of sensitive data, the management of intellectual property, insurance arrangements and the preservation of confidentiality. Subcontractors must be aware of any continuing obligations.
6. Back up your logs
It is wise to back up logs if they are stored in a centralized system to protect them from possible deactivation or restricted access. This ensures that vital information remains accessible.
7. Effective communication
Speed is crucial when decisive action needs to be taken. More communication may occur over the phone or in person, so it’s vital to follow up calls with written records or emails to maintain an audit trail.
Three key steps below
In any situation like this, where uncertainty is high, the financial implications will be at the forefront of many subcontractors’ concerns. So what should be the next move for those affected by the HS2 news? Here are three key steps you should take:
- Determine the reasons for your claim: Begin by explaining the reasons for your claims, which could relate to work completed, expected benefits, or additional costs due to the sudden end of the project.
- Collect evidence: Collect all essential evidence, including financial statements, communication records, contract variations or any other documents that support your claim. Speed is critical to protecting this data in the event that access to systems is restricted.
- Participate in a constructive dialogue: Before resorting to legal action, consider starting a constructive dialogue with prime contractors or relevant parties. Proactive conversations can often lead to resolutions, preventing protracted legal battles from taking root.
A potential silver lining
Amidst the uncertainty created by the cancellation, there might be some hope, however. The Prime Minister’s pledge to redirect £36 billion from HS2 to regional transport projects offers potential payoff.
This is because subcontractors can uncover more opportunities in a construction landscape crowded with numerous projects, allowing smaller players to bid, win and execute projects without being overshadowed by large contractors.
HS2 has been firmly in the spotlight for consuming substantial resources over the years. While the full impact is yet to be seen, scrapping the North Leg could free up construction resources, materials and labor across the sector. On the one hand, this could lead to greater availability and potentially stable costs in certain areas. On the other hand, businesses that had aligned themselves with HS2 work may face sudden financial pressures and, if this is the case, will need to move quickly to protect themselves.
