Passing settlement loss to a subcontractor

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Legal and contractual solutions · Practical completion and defects

When may a contractor recover from a subcontractor after settling an employer defect claim?

Proof of breach, reasonable settlement and loss allocation

A settlement with the employer does not bind a non-settling subcontractor or prove the amount recoverable downstream. The contractor must establish subcontract breach, causation and a reasonable sum attributable to that breach.

Quick answer

The contractor must prove an attributable and reasonable loss; a global settlement cannot simply be passed down

The subcontractor is not automatically liable because the contractor settled an employer's claim. The contractor must prove that the subcontract work was defective, that the defect caused recoverable loss and that the settlement, or the relevant allocated part, was reasonable. A global compromise with no allocation may create a serious evidential problem. The downstream claim must account for cross-claims, negotiated discounts, other parties' responsibility and any benefit received in the overall settlement.

IssuePosition
Employer settlementDoes not bind the subcontractor automatically
Subcontract breachMust be proved
CausationMust connect breach to contractor loss
Global settlementRequires supported allocation
Recoverable amountReasonable sum attributable to the breach

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