How to Read a Subcontract in 20 Minutes
WHAT HAPPENED·? ILLUSTRATIVE COMPOSITE
The subcontract ran to 87 pages. The project engineer managing the package had read the scope schedule and the programme. He had not read the payment terms, the retention provisions, the variation mechanism, the notice requirements, or the set-off clause.
A variation was needed in month four. He instructed it verbally, on site, and the subcontractor did the work. When the account came in, the main contractor's QS found the subcontract required written instructions in a specified form, issued by a named individual — and that the verbal instruction created no contractual entitlement.
The work had been done. The main contractor had the benefit of it. But the mechanism had not been followed, which meant the argument moved from the contract onto far weaker ground — restitution, estoppel, waiver — where outcomes are uncertain and legal costs are not.
“You do not need to read 87 pages. You need to read the five clauses that will govern every commercial decision on the package — and you need to read them on day one, not in month four.”
Scope, and a warning about clause numbers
Why no clause numbers. Subcontract forms vary more than main contract forms do. Bespoke and amended subcontracts are the norm in Nigeria, and the standard back-to-back forms differ between JCT, NEC4 and FIDIC families. This article therefore describes the five clauses by function rather than by number — the number in your subcontract will not match anyone else's, and quoting a number you have not read is exactly how people end up confidently wrong.
Scope and sources. Where a statute is cited, it is cited precisely. The case above is a constructed composite; the legal positions described are real. The English statutory material is included because it is what most textbooks and training describe — and because the Nigerian position is different in a way that matters commercially.
Clause one — payment, and the provision that behaves differently here
What to look for. The payment clause sets out when entitlement arises, the application mechanism, the period for payment, and whether retention applies. Read it first, because it determines the subcontractor's cash position for the entire package.
Two clauses, not one. Two distinct provisions are routinely confused, and the distinction matters. A pay-when-paid clause makes payment to the subcontractor conditional on the main contractor first receiving payment from the employer. A pay-when-certified clause makes it conditional on something happening under a different contract — typically the employer certifying the relevant sum to the main contractor. They are different mechanisms and, in England and Wales, they are caught by different provisions.
The English position. In England and Wales both are prohibited, not merely restricted. Section 113(1) of the Housing Grants, Construction and Regeneration Act 1996 provides that a provision making payment under a construction contract conditional on the payer receiving payment from a third person is ineffective, unless that third person is insolvent. Separately, amendments introduced by the Local Democracy, Economic Development and Construction Act 2009 render ineffective provisions making payment conditional on the performance of obligations under another contract, or on a decision by any person as to whether obligations under another contract have been performed — which is what catches pay-when-certified.
The Nigerian position. Nigeria has no equivalent statute. There is no Nigerian counterpart to the Housing Grants, Construction and Regeneration Act, and consequently no statutory prohibition on either clause. The position is governed by ordinary contract law: freedom of contract, and the clause construed according to its terms. A clearly drafted conditional payment provision is therefore considerably more likely to be enforceable here than in the jurisdiction most construction training describes.
What follows from it. That is a commercial fact with a direct consequence. A Nigerian subcontractor signing a pay-when-paid clause is accepting real employer-insolvency and employer-delay risk, with no statute standing behind it. It is a point to price, or to negotiate out, at tender stage — not a technicality to be argued about after the employer stops paying.
And a caution. A caution on precision. The absence of a prohibiting statute is not the same as a Nigerian court having ruled these clauses enforceable in all circumstances. Enforceability will still turn on clarity of drafting and ordinary construction principles, and comparative jurisdictions have shown courts willing to scrutinise such clauses where the wording is ambiguous. The honest statement is: no statutory bar, ordinary contract law applies, drafting clarity decides it.
Clause two — variations, and who may actually instruct one
What to look for. The variation clause defines who has authority to instruct a change, the form the instruction must take, how the work is valued, and any time limit for agreeing value. In most well-drafted subcontracts only named individuals may instruct, and instructions must be in writing.
Why the form matters. Verbal instructions generally create no contractual entitlement. Whether a later written confirmation rescues the position depends on the wording — many forms provide a confirmation mechanism with its own deadline — and on the parties' conduct. A subcontractor who proceeds on a verbal instruction is not without any remedy, but is moved off the contract and onto restitution or estoppel arguments, which cost more and win less often.
The fix. This is the cheapest risk on the list to eliminate. Brief every engineer and package manager at commencement on two facts: who may instruct and in what form. It takes two minutes and prevents the composite above.
Clause three — notices and the deadlines that extinguish claims
What to look for. Subcontracts commonly contain condition-precedent notice provisions: notify within a stated period or lose the entitlement entirely. These are frequently shorter than the equivalent main contract periods, because the main contractor needs time to pass a claim upstream before its own deadline expires.
The trap. That compression is the trap. A subcontractor working to the main contract's familiar 28-day rhythm may find its own subcontract requires notice in fourteen days, or seven. Extract every notice period in the subcontract, write them into the package management plan at commencement, and diarise them.
And the detail. Check also what the notice must contain and to whom it must be addressed. A notice served on the wrong person, or lacking a required particular, is commonly treated as no notice at all — which is a harsher outcome than serving late.
Clause four — retention and defects liability
What to look for. Retention provisions state the percentage held, the limit, when the first tranche is released, and when the balance follows. The release triggers usually sit back-to-back with the main contract — which means a subcontractor finishing its package in month six may wait until main contract practical completion, potentially years later, for the first release.
The failure mode. Nothing releases automatically. As Week 11 sets out for the main contract, retention comes back because somebody claims it in an application at the right time. On a subcontract package whose team demobilised eighteen months earlier, that somebody frequently does not exist. Diarise both release dates at commencement and assign them to a named person who will still be with the business.
And read them together. Read the defects liability provision alongside it, because the two are linked: the second retention tranche typically follows expiry of a defects period whose length and trigger are defined in that clause, not in the retention clause.
Clause five — set-off and contra-charges
What to look for. The most commercially aggressive clause in most subcontracts, and the one least often read. Set-off provisions allow the main contractor to deduct sums from amounts otherwise due — for delay, defective work, attendance, plant, cleaning, or breach generally.
The three questions. Three questions decide how dangerous it is. What may be deducted — a closed list of specified heads, or any sum the main contractor considers due? Who decides the quantum, and on what evidence? And is prior notice required before deduction, with a stated period? A clause permitting deduction of sums the main contractor unilaterally assesses, without notice, transfers very substantial commercial power.
The defence. Contra-charges raised at final account stage, long after the events they relate to, are among the most common subcontract disputes. The defence is contemporaneous: records of attendance actually provided, of plant actually used, and of the condition of work at handover — kept as the package runs, not reconstructed when the deduction appears.
“Most textbooks describe a jurisdiction where conditional payment clauses are prohibited. Nigeria is not that jurisdiction — and a subcontractor who assumes otherwise has priced a risk it is actually carrying.”
The case against reading only five clauses
The obvious objection. The premise of this article is a shortcut, and shortcuts deserve scrutiny before they are recommended.
The argument. Subcontract risk is not confined to five clauses. Scope definition — what is included, what is excluded, and what is deemed included — causes at least as many disputes as anything on this list, and lives in schedules rather than conditions. Programme and access obligations, insurance requirements, design responsibility where a package carries any, and termination provisions all bite hard when they bite. A team that reads five clauses and believes itself covered has swapped one blind spot for a narrower one.
And a second. There is also a risk specific to bespoke documents, which are the Nigerian norm. Amended forms move things. A set-off provision may be drafted into the payment clause, a condition-precedent notice buried in a variation procedure. Reading by heading rather than by function will miss them.
Where that leaves it. The honest defence of the shortcut is that it is a floor, not a ceiling. Five clauses read properly by the person managing the package beats eighty-seven pages read by nobody, which is the realistic alternative. The QS should read the whole document; the engineer should read these five and know which questions to escalate.
What to do at package commencement
First. Extract the five clauses into a one-page package summary. Who may instruct, in what form; every notice period and its addressee; the payment mechanism and any conditional element; both retention release triggers; and the set-off regime.
Second. Brief the engineers and package managers on the variation authority and form requirement specifically. It is the cheapest failure on the list to prevent and the most common to occur.
Third. On any conditional payment provision, establish before signing whether the risk is priced or negotiated out. In Nigeria there is no statute that will rescue the position later.
Fourth. Assign the retention release dates to a named individual with a diary entry, not to ‘the project team’ — which will not exist when the dates arrive.
THE BROADER POINT
Read the five. Brief the team. Price what you are actually carrying.
Most subcontract disputes come from three causes: the wrong variation procedure, a missed notice deadline, or a misunderstood payment mechanism. All three are preventable in twenty minutes at commencement. And one of them carries a Nigerian twist worth stating plainly. The conditional payment clauses that are statutorily ineffective in England and Wales have no equivalent prohibition here. Ordinary contract law applies; drafting clarity decides enforceability, and a subcontractor who signs one is carrying employer insolvency risk with nothing standing behind it. Price it, or negotiate it out — before signature, not after the employer stops paying.
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CLAUSE REFERENCES Housing Grants, Construction and Regeneration Act 1996 (England and Wales): s. 113(1) — a provision making payment conditional on the payer receiving payment from a third person is ineffective unless that third person is insolvent; s. 113(2)–(6) (definition of insolvency; consequences); as amended by the Enterprise Act 2002 (Insolvency) Order 2003 (SI 2003/2096). Local Democracy, Economic Development and Construction Act 2009 — amendments inserting HGCRA 1996 s. 110(1A)–(1D), rendering ineffective provisions making payment conditional on performance of obligations under another contract or on a decision as to whether such obligations have been performed (the pay-when-certified prohibition). · Nigeria: no statutory equivalent to HGCRA 1996 has been identified; conditional payment provisions are accordingly governed by ordinary principles of contract law and construction of the specific wording. This is stated as the absence of a prohibiting statute, not as a judicial ruling that such clauses are enforceable in all circumstances. · Subcontract clause numbering is not cited because bespoke and amended subcontract forms are the Nigerian norm; the five clauses are described by function. |
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