Construction contracts are incredibly complex, and disputes over payments are among the most frequent sources of litigation among businesses operating in the construction industry. One concept that often arises in such disputes is the contra charge. Understanding the contra charge meaning and how it operates is crucial in understanding your legal position in connection with a construction dispute.

 

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What is a Contra Charge?

A contra charge refers to sums withheld by one party to a construction contract, usually the main contractor or employer, that would otherwise be payable to the other party to the contract, usually the subcontractor.

Contra charges arise when the main contractor or employer experiences unexpected costs in connection with the construction project caused by the failings of another party. For example, a contra charge may cover the cost of services that the subcontractor should have performed, or costs that the main contractor incurred as a result of the subcontractor’s defective work.

 

When might a party to a Construction Contract raise a Contra Charge?

Contra charges can arise in a wide range of situations, including the following:

 

  • Defective works. If the main contractor has to pay for remedial works to rectify defective works, it may raise a contra charge to cover the cost. Defective works are one of the main reasons for a main contractor making a contra charge.

 

  • If the main contractor incurs additional costs as a result of a subcontractor’s delays, it may raise a contra charge.

 

  • Damage to the site of the project. If the main contractor has to pay to repair the site, it may raise a contra charge.

 

When can a party to a Construction Contract raise a Contra Charge?

A party to a construction contract cannot raise a contra charge simply because they claim to have incurred unexpected costs as a result of another party’s failings.  They must show that the party subject to the contra charge breached a contractual obligation and that they have suffered a genuine and quantifiable loss as a result.

Understanding whether a subcontractor has breached a contractual obligation requires a deep understanding of construction contracts and the law governing construction projects. Our construction litigation solicitors are experts in this niche area of law. We will review your contract to ascertain whether there has been a breach, and advise you on your legal position.

 

What should a party to a Construction Contract do before raising a Contra Charge?

Before raising a contra charge, a party to a construction contract must issue a Pay Less Notice in accordance with the relevant timeframe. If they fail to do so, the other party may escape liability for the contra charge, even if it is valid.

The contract itself likely details further requirements which must also be complied with. For example, the contract may specify notification requirements dealing with when and how the main contractor must notify the subcontractor about contra charges. The contract may state that the subcontractor should be given an opportunity to remedy the breach before the main contractor incurs the costs and seeks to claim them as contra charges.

Failing to comply with the applicable terms in the contract may place the main contractor in breach of contract. It is important to take expert legal advice from experienced construction litigation solicitors like ours before taking any steps in connection with a breach of contract that you believe may give rise to a contra charge. We will review the relevant terms of the contract and advise you on the steps you must take to comply with your contractual obligations.

Evidence is key in contra charge matters. it is up to the party seeking to raise a contra charge to prove that it is valid. Keeping detailed records, photographs, inspection records, invoices, progress reports, correspondence, and any other relevant evidence is crucial in substantiating the costs claimed. This evidence will also play a key role in any legal proceedings that arise as a result of the contra charge.

Prevention is always better than cure, and seeking to resolve an issue before raising a contra charge is preferable to risking a dispute. Misuse or mishandling of contra charges are common causes of payment disputes in the construction industry and frequently end up in lengthy, expensive adjudication or court proceedings.

By taking specialist legal advice as soon as a potential contra charge issue arises, you can avoid disputes and protect your position. The cost of timely legal guidance is almost always significantly less than the costs incurred in fighting a contra charge dispute later.

 

For a confidential free discussion, call us today on 01908 414990,  alternatively email us at Hello@altion-law.co.uk or complete our Free Enquiry Form and we will call you back.