We are currently building out a small residential development.  The job is nearing completion and was going well until two of the trade contractors walked off site before completing their work, apparently because they can make more money on another job.  What are our rights in this position?  Can we force these contractors back to work, and are we entitled to recover damages?

Your position very much depends on the applicable contract terms, so this sort of problem underlines the importance of putting proper contractual arrangements in place. 

If you have employed a main contractor to carry out the development, the normal rule is that the contractor is wholly responsible for completing the job in accordance with the terms of the main contract, and this is not affected by any sub-contracting.  A contractor is generally responsible for all the acts and omissions of its sub-contractors, so default by the sub-contractors will not excuse the contractor from its obligations under the main contract.  The contractor has to complete the job, so it will have to employ replacement sub-contractors and will be responsible for any delays that all this causes, and will not usually be entitled to pass on any increased costs of employing replacement contractors.  You are entitled to recover the delay costs as damages, and to deduct these from money due to the contractor under the building contract, subject always to serving a payless notice as required under the Construction Act.

If you have a JCT contract in place, this will typically specify a completion date, will provide for extension of the time for completion in defined circumstances, and will provide for liquidated damages in the event of delayed completion.  As the contractor is fully responsible for the actions of its sub-contractors, the default of these does not entitle the contractor to an extension of time.  You say that the job was going well, so in the absence of any other delays which might give rise to an extension of time, you will be entitled to deduct or recover liquidated damages at the contractual rate in respect of the period between the contractual completion date and the date of actual completion.

The JCT contracts require a set procedure to be followed before liquidated damages can be deducted from moneys due to the contractor.  A "non-completion certificate" must be issued by the contract administrator, stating that the works have not been completed by the contractual completion date.  The employer must then notify the contractor that it requires payment of liquidated damages and that these will be deducted.  Finally, a payless notice should be issued, covering the deduction of the liquidated damages from a payment under the contract.

If you have procured the job directly from various trades contractors, without appointing a main contractor, the position is rather different.  The exact nature of your rights against the individual trades contractors will again depend on the terms of their contracts, but abandoning the work in this way will generally entitle you to either implement the termination provisions in the trades contract or to treat the contract as having been repudiated by the trades contractor, and thus at an end.  You will, in either case, be entitled to claim damages from the defaulting trades contractors and, subject to complying with any procedures in the contract and to issue of a payless notice, to deduct these damages from payments due to the trades contractor.  These damages should include the cost of the delays caused by the defaulting contractors and the increased cost of employing replacement contractors.

In theory you have the right to apply to the courts for specific performance of the trades contracts, but in practice this is rarely cost effective and will lead to increased delay: it is usually best to terminate the original contracts, employ new contractors, and to move on, simply deducting the delay and other costs caused by the default of the original contractors from sums due to them.  Also, the courts will never order specific performance of contracts for performance of personal services, on the basis that this equates to forced labour, so this is not an option where the trades contractors are individuals.

This article originally appeared in Professional Housebuilder and Developer in July 2015 and was written by David Johnson, a Partner in the Construction team.