Sub-Subcontractor Payment Chains: Who Actually Owes You?

SiteKiln gives you plain-English information, not legal advice. If you're caught in a payment chain dispute and money is at stake, talk to a construction solicitor or adjudication specialist.

‍‌​​‌‌​​​‌​‌​‌‌​​‌​​‌​‌‌​​‌​​​​‍# Sub-Subcontractor Payment Chains, Who Actually Owes You

You're not "working for the main", you're working for whoever you signed up with. That's who has to pay you, and that's who you can chase.

1. Who actually owes you the money

In a typical chain:

Client → Main Contractor → Subcontractor → You (sub-sub)

• Your contract is with the sub above you, not the main contractor
• Your payment rights run against the sub you signed with, not the main or the client
• If the sub doesn't get paid by the main, that's their problem in law · they still owe you under your subcontract

When you're subbed to a sub, forget the main's payment terms. Your focus is your own subcontract and the payment terms in it.

This sounds obvious until the money stops flowing. That's when people start saying "the main hasn't paid us so we can't pay you." In most cases, that excuse doesn't hold up legally (see section 6).

2. The Construction Act still protects you

The Housing Grants, Construction and Regeneration Act 1996 (the "Construction Act"), as amended by the Local Democracy, Economic Development and Construction Act 2009, applies to all construction contracts in England, Wales, and Scotland, including sub-subcontracts.

Key protections

Since the 2011 amendments, the Act applies to contracts whether they're written, partly written, or oral. The old "must be in writing" requirement has been removed. So even if your deal is a WhatsApp message and a handshake, the Construction Act can still give you basic payment rights.

If your subcontract is a "construction contract" (most trade work qualifies), you get:

• Right to interim or periodic payments · you can't be made to wait until the job's finished for your first payment
• Payment notice / pay less notice regime · the sub must tell you how much they'll pay and by when, or issue a proper pay less notice if they're deducting
• Right to adjudication · you can refer a payment dispute to an adjudicator at any time, and get a decision (usually within 28 days) that's temporarily binding
• Right to suspend for non-payment · if they don't pay and haven't issued a valid pay less notice, you can give 7 days' written notice and stop work

If your subcontract's payment clauses don't meet the Act's minimum standards, the Scheme for Construction Contracts steps in automatically and fills the gaps with default terms.

The Construction Act doesn't care if your deal is scribbled on a bit of plasterboard. If it's a construction contract, the basic payment and adjudication rules apply.

3. When the main goes bust, but the sub is still alive

If the main contractor becomes insolvent, but the subcontractor you work for is still trading:

• Your contract with the sub is unchanged · they still owe you for work done under your subcontract
• The fact the main hasn't paid them is their commercial problem, not yours
• They cannot use the main's insolvency as a blanket excuse to not pay you (see section 6 on pay-when-paid)

They might try:

• "We can't pay you until we get paid" · usually unlawful under s.113 (see section 6)
• "The job's dead, so your money's gone too" · your subcontract doesn't evaporate because the main's gone
• "Everyone's in the same boat" · not legally. Your contract is with them, not the main.

You can still:

• Pursue them for payment under your subcontract
• Use your Construction Act rights · adjudication, payment notices, suspension
• Apply for interim payments under the Scheme if your subcontract doesn't have proper payment terms

The uncomfortable truth: sometimes a main's insolvency pushes the sub under as well. If that happens, your position changes (see section 4).

4. When the sub above you goes bust

If the subcontractor you're contracted to becomes insolvent:

• You become an unsecured creditor of that company or individual
• You cannot bypass them and demand payment directly from the main contractor · you have no contract with the main
• You submit a proof of debt to the liquidator or administrator and hope for some pence in the pound · often nothing

What the main contractor might do

Sometimes the main or employer will:

• Offer direct payment to keep you on site and finish the work · offsetting what they pay you against what they owed the insolvent sub
• Offer you a new contract to continue the work directly for them

But that's a commercial deal made by choice, not a legal right you automatically have. The main is under no obligation to pay you just because the sub went down.

If the main offers you a direct deal:

• Get it in writing before you do any more work
• Agree new payment terms · don't assume the old terms carry over
• Don't start work on a promise of "we'll sort something out" · that's not a contract

5. Can you go straight to the main for payment?

Generally: no. Not on a normal sub-subcontract.

You can only pursue the main contractor directly if:

Direct payment clause

There's a direct payment clause in the main contract (between main and sub) that allows the main to pay you directly and deduct it from what they owe the sub. This is relatively rare but exists on some larger contracts.

You can ask: "Is there a direct payment provision in the main contract that covers sub-subs?"

Collateral warranty or direct agreement

You have a collateral warranty or direct agreement from the main contractor or employer that:

• Creates a direct contractual relationship between you and them
• Gives them step-in rights to take over your work
• Makes them responsible for paying you if they exercise those step-in rights

Without either of those

Your only legal debtor is the sub above you. Don't bank on "the main will sort us out" unless you've actually seen and signed a direct agreement or warranty.

6. "Pay when paid", still banned (with one exception)

Section 113 of the Construction Act is clear:

A clause that makes payment to you conditional on the payer receiving payment from a third party is ineffective · except where that third party is insolvent.

What this means in practice

The insolvency exception in detail

If the main contractor becomes formally insolvent (administration, CVL, compulsory liquidation), and your subcontract contains a clause making payment conditional on the main paying the sub: that clause may become effective under the s.113 exception.

This means: if the main goes under and your subcontract has the right wording, the sub above you may be able to legally withhold payment.

This is why the wording of your subcontract matters. A clause saying "we pay you 30 days after our application is valued" is fine. A clause saying "we pay you within 14 days of receiving payment from the main contractor" is a pay-when-paid clause, banned except in insolvency.

If you're not sure whether your subcontract contains a conditional payment clause, get it checked before you need to rely on it.

7. How to protect yourself as a sub-sub

You can't control the entire chain. But you can stop being the last one to realise the money's gone.

Before you start

Get something in writing · even with a mate. A text, an email, a one-page agreement. It should cover:

• Scope of works
• Price (lump sum, daywork rates, or measure)
• Payment terms: when you apply, when payment is due, when final date is
• Any retentions (percentage, release dates)
• Whether there's a direct payment provision in the main contract

Check for pay-when-paid wording. Don't accept "we only pay when the main pays us" as a blanket term. If it's there, challenge it, or at least understand that it may bite if the main goes insolvent.

Ask about direct payment and collateral warranties:

• "Is there a clause in the main contract allowing the main to pay us direct if you go bust?"
• "Will the main give us a collateral warranty if they want us on site long-term?"

Most subs will say no. But asking puts the risk on the table.

When you see trouble building

Warning signs that the chain is under stress:

• Payments getting slower at each valuation
• The sub making excuses linked to the main ("they haven't certified yet", "they're querying the variation")
• Site going quiet, workforce thinning, materials not arriving
• Rumours about the main or the sub having cash problems

What to do:

• Tighten your exposure · don't let unpaid valuations stack up. If you're owed for two months, don't keep doing a third month's work unpaid.
• Press for payment using your Construction Act rights · issue your own payment notice if they don't, and consider adjudication if they're ignoring you
• Consider suspension · if they haven't paid and haven't issued a valid pay less notice, you can give 7 days' written notice under the Construction Act and suspend

If the main goes insolvent

1. Check your subcontract wording around upstream insolvency and pay-when-paid
2. If the sub is still solvent and the clause doesn't fully switch off your rights · pursue them. Adjudication is often the quickest route.
3. If the sub is wobbling too, talk to the main/employer about direct payment to keep you on site · but get any new arrangement in writing before you work another day

If the sub goes insolvent

1. Get your tools and materials off site immediately if you still own them (retention of title · see our guide on main contractor gone bust)
2. Submit a proof of debt to the insolvency practitioner · but eyes open that recovery is likely small or zero
3. Talk to the main/employer about stepping in directly · but don't start work without a clear new contract with agreed payment terms
4. Talk to your accountant about writing off the bad debt for tax purposes

What to do next

1. Check your current subcontract · does it have pay-when-paid wording? Does it reference the Construction Act? Are the payment terms clear?
2. If you don't have a written subcontract: create one, even a simple one. We have templates in the Document Hub.
3. If you're not being paid: issue your own application for payment, chase formally, and consider adjudication · don't just wait and hope
4. If the chain is collapsing: protect your tools and materials, reduce your exposure, and don't keep working unpaid on promises

Sources

• Housing Grants, Construction and Regeneration Act 1996, Part II · legislation.gov.uk/ukpga/1996/53/part/II
• Housing Grants, Construction and Regeneration Act 1996, s.113 (conditional payment provisions) · legislation.gov.uk/ukpga/1996/53/section/113
• Local Democracy, Economic Development and Construction Act 2009 (amendments removing "in writing" requirement) · legislation.gov.uk/ukpga/2009/20
• Scheme for Construction Contracts (England and Wales) Regulations 1998 (as amended) · legislation.gov.uk/uksi/1998/649
• Insolvency Act 1986 · legislation.gov.uk/ukpga/1986/45

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