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How to avoid double payment for the same construction works?
Due to the protection of subcontractors
carrying out construction works, with said protection consisting in the
possibility to demand payment for the performed works directly from the
investor, the investor may be forced to pay the remuneration twice – both to
the general contractor and to the subcontractors. Still, the risk of double
payment may be significantly reduced by way of inserting certain provisions into
the agreement for construction works.
The fact that joint and
several liability of the investor for the payment of remuneration to the
subcontractor according to article 6471 of the Polish Civil Code can be created that easily puts the investor at a
serious risk connected with payments for the performed construction works. Even
once the payment is made to the general contractor, and it seems that the
construction has been settled, the subcontractor may effectively file a claim for
payment with the investor. What is more, the subcontractor may request payment
long after the investment has been accepted (the limitation period for such
claims is 3 years). In the event that the investor fails to take this problem
into account already when entering into agreement with the general contractor,
it will prove very difficult for the investor to defend themselves against the
obligation to incur additional costs connected with a further payment for the
works carried out by the subcontractor.
For this reason, the
agreements for general contracting of investment more and more often include
elaborate, detailed regulations regarding the rules of disbursement of
remuneration in respect of the works carried out with the assistance of the
subcontractors. First of all, the disbursement of remuneration to the general
contractor may be subject to whether the general contractor submits proofs reflecting
the status of settlements with the subcontractors. Such proofs may come in the
form of statements of the subcontractors on the lack of payment arrears,
invoices of the subcontractors along with proofs of payment, lists of paid
invoices and overdue payments.
The investor may protect
himself in a similar way by making – under the agreement for general
contracting – payment payable to the general contractor in part directly to the
benefit of the subcontractors (under a remittance). In this variant, the
agreement may provide that the investor receives from the general contractor an
invoice along with the subcontractors’ invoices, their statements that the
amounts indicated therein satisfy their claims on account of remuneration for a
particular part of works, and the consent of the general contractor to make
payment directly to the subcontractors.
Both solutions mentioned above require that the investor exercises increased
control over the correctness of settlements with the subcontractors. They are,
however, easy and effective provided that the investor is capable of ensuring
an efficient handling of settlements at the site taking into account the scope
of works covered by the subcontracting agreements, and the investment schedule.
Another solution consists in
the investor entering into agreements directly with the subcontractors so as to
avoid a situation where the subcontractors are employed by the general contractor.
This solution will work out if the investor will at the same time make sure
that all contractors engaged in the investment are well coordinated – whether
with the help of the investor’s own services or with the help of an employed external
entity (whom also the general contractor may be).
propositions are of preventive character, that is they reduce the risk of
double payment by way of monitoring or taking over by the investor of the
settlements with the subcontractors. The investor may also protect their
interest in yet another manner – by way of securing themselves against claims from
the subcontractors by way of entering into insurance policies or requiring that
security be established by the general contractor. Due to the high cost of
payment protection insurance, the more frequently applied measure is to oblige the
general contractor to provide security to cover the investor’s possible
recourse claims on account of making payment to the subcontractors. Such
security may constitute a part of a performance bond (e.g. in the form of a
bank guarantee or retention money) or be of distinct character. The
disadvantage of this solution is the usually low amount of such security,
reaching most often only few per cent of the general contractor’s remuneration.
What else can the investor
do so as to minimize the financial risk connected with joint and several liability
for remuneration payable to the subcontractors? First of all, they should make sure
that the scope of works commissioned to the subcontractors is explicitly set
forth in the agreement made with general contractor, and also include in said
agreement the procedure of suggesting the subcontractors to be employed by the general
contractor and granting possible consent for employing them. Compliance with
the aforementioned provisions should be subject to contractual penalties or
other sanctions, which would motivate the general contractor to comply therewith.
The application of the
aforementioned solutions will not, of course, make that the risk connected with
investor’s joint and several liability will be entirely eliminated. Still,
properly constructed agreement for construction works and investor’s active
attitude are certainly the key factors preventing the necessity of double
payment of remuneration.