TRUnder recent changes to the law, sub-contractors can now claim against the principal or head contactor for payments due to them from the person that contracted them to carry out the work.

Before the amendments, if you were owed money by a contractor you had to obtain a judgment in a Court or an adjudication certificate, whilst at the same time not knowing whether the contractor who owed you the money had the funds. The consequent delay in that process sometimes allowed the contractor to “do a runner”.

The changes effectively enable a sub-contractor to earmark and secure money owed to a contractor by the principal contractor. It has the potential to minimise the risk of non-payment due to a contractors insolvency or dishonesty.

The legislation effectively freezes money in the hands of the principal contractor before it is paid to the person or entity who owes the sub-contractor the money.

A sub-contractor must first lodge and serve an adjudication application on the contractor and then serve on the principal contractor a “payment withholding request”.

The principal contractors’ obligation is to withhold an amount equal to the amount specified until either the contractor pays the sub-contractor or there is an adjudication certificate in your favour.

If an adjudication certificate is served on the principal contractor, the principal contractor must pay the sub-contractor the amount withheld.

If the principal contractor does not comply with the request, it becomes liable for the debt owed to the sub-contractor.

In effect the new amendments allow a sub-contractor to use money owed to the contractor by the principal contractor as security for the sub-contractors entitlements to payment under the sub-contract.

The process is very much paper and time driven and needs to be carefully managed to ensure the documentation is correct and the time limits observed.

If you require assistance in recovering your debts, Everingham Solomons have the experience, because Helping You is Our Business.

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