nominated sub-contractor

1.0 Introduction

Until the mid 1970s, there were only two categories of sub-contract, which are nominated and domestic. A nominated sub-contract is where a sub-contractor is selected and appointed/ nominated by the client. The client instructs the main contractor, through the architect, to use the nominated sub-contractor for an element of work, usually an engineering package such as piling, M&E services or structural frame; the main contractor must use the quotation obtained by the client as the sub-contract sum.

A nominated sub-contractor is often appointed after the main contractor has started work, so one of the client benefits is that specialist design can continue after work has commenced on site.A prime cost sum is included within the main contractor’s tender document (a bill of quantities or specification of work). On top of this the main contractor is required to price overheads, profit and any items of attendance it has to provide, such as the use of site facilities, provision of a secure storage area etc. The value of the prime cost sum is omitted from the Bill of Quantities and replaced by the nominated subcontractor’s accepted quotation and the main contractor’s on costs are adjusted as appropriate.

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On the other hand, a domestic sub-contractor is selected and appointed by the contractor using the specification issued by the client’s consultants. The client has no input into the selection of that sub-contractor and often will not even know its identity. The rationale being that the client employs the main contractor to take responsibility for executing the work using whatever method he chooses, either by using its own operatives or by employing a sub-contractor. (CC&L Department, 2005)

Contractually named sub-contract is the same as a domestic sub-contract except the client states which contractors are acceptable without taking responsibility for their final selection and appointment.

Brain E. Rawling & Associates (2003) stated, it was due to such risks that in the late 1980’s, Swire Properties Limited introduced into its contracts the concept of named subcontracting, to replace traditional nominated subcontracting with its potential risks to an employer. It was first formalised by the Joint Contracts Tribunal (JCT) Intermediate Form of Contract in 1984.

The named subcontracting concept requires names of would-be subcontractors to be furnished at the main contract tender stage by the consultants, for the main contractor to issue tender enquiries and for him to select the proposed named subcontractor. Further, after the award of the subcontract, the named subcontractor is treated like any other domestic subcontractor and the employer/architect have no obligation to re-nominate.

2.0 Review the Method of Appointing Specialist

Contractor

JCT SBC 98

2.1 Procedure for appointing Specialist Contractor for JCT SBC 98

Under JCT 98, Clause 35.6.1, The Architect/ Contract Administrator completes invitation to tender to Sub-Contractor in NSC/T Part 1;

Under JCT 98, Clause 35.6.2, The Architect/ Contract Administrator completes the relevant section of Agreement NSC/W.

The Architect/ Contract Administrator sends NSC/T Part 1 and Agreement NSC/W with drawings, specification, or bill of quantities, which describe of work, to those companies that the employer wishes to invite to tender.

Under JCT 98, Clause 35.6.1, The tenderers complete the NSC/T Part 2 and relevant section of warranty in Agreement NSC/W and return both NSC/T Part 2 and NSC/W to the Architect/ Contract Administrator.

Under JCT 98, Clause 35.6.3, The Architect/ Contract Administrator selects the Sub-Contractor, and arranges for the Employer to sign the selected Sub-Contractor’s tender to confirm his approval of it, and to execute the warranty in Agreement NSC/W.

The Architect/ Contract Administrator using Nomination NSC/N to nominate the selected Sub-Contractor to Contractor. The Architect/ Contract Administrator sends a copy of the NSC/T Part 1 and NSC/T Part 2 to Contractor with the drawings, specification, or bill of quantities on which the tender was based and the executed warranty.

Under JCT 98, Clause 35.5.1, once the Contractor receives of those documents, Contractor has the right to reject the selected Sub-Contractor in seven working days from the date of receipt of those documents, with a reasonable proposal rejection, to the Architect/ Contract Administrator. If Contractor does not exercise his right, he must reach agreement with the selected tenderer on the particular conditions in NSC/T Part 3.

Under JCT 98, Clause 35.1.2, The Architect/ Contract Administrator either remove the objection of Contractor and Contractor shall comply with the Architect/ Contract Administrator’s instruction; or cancel the nomination of such Sub-Contractor, omitting the work by such Sub-Contractor and nominate another Sub-Contractor.

Under JCT 98, Clause 35.7.1, when the particular conditions have been reaching, the Contractor and selected Sub-Contractor shall sign the NSC/T Part 3.

Under JCT 98, Clause 35.7.2, Contractor shall execute the Agreement NSC/A, which incorporated by reference into Conditions NSC/C.

Under JCT 98, Clause 35.7, The Contractor sends a copy of the signed NSC/T Part 3 and execute the Agreement NSC/A to the Architect/ Contract Administrator for his record.

Chapter 3:

Review the Method of Appointing Specialist

Contractor

JCT SBC 05

3.1 Procedure for appointing Specialist Contractor for JCT SBC 05

In JCT SBC 05, Nominated Sub Contract for JCT SBC 98 had been discontinued. Nominated Sub-Contract had been replaced by Domestic Sub-Contract and Named-Sub-Contract. In JCT SBC 05, the Private and Local Authority seditions have been combined. In JCT SBC 05, delay caused by Nominated Sub-Contractor or Nominated Supplier is not entitled to adjustment of completion date and loss and/or expenses.

Under JCT 05, Clause 3.7.1, If the Contractor intention to sub-contract the whole or part of the Works, he shall inform the Architect/ Contract Administrator. The Contractor shall remain his responsibility although such Work had been subcontracted to Sub-Contractor.

Under JCT 05, Clause 3.7.2, Contractor cannot sub-contract the Contractor’s Design Portion to Sub-Contractor without Employer’s consent. The Contractor shall remain his responsibility although such design had been subcontracted to Sub-Contractor.

Under JCT 05, Clause 3.8.1, the Contractor shall name at least three persons in a list to the Contract Bills.

Under JCT 05, Clause 3.8.2, the Employer behalf of the Architect/ Contract Administrator and the Contractor are able to add additional persons to the list before the sub-contract bound by writing.

Under JCT 05, Clause 3.8.3.1, if the list is less than three persons, Employer behalf of the Architect/ Contract Administrator and the Contractor shall add the names of the other persons so that the list not less than three persons.

Under JCT 05, Clause 3.8.3.2, if the list is less than three persons, the Work shall carried out by the Contractor, and may sub-contract the whole of part of the Work to any Sub-Contractor by consent of the Architect/ Contract Administrator. Contractor shall remain the responsibility of the Work as well. Such Sub-Contractor as known as Domestic Sub-Contractor.

Under JCT 05, Clause 3.8.3.2, the succeed Sub-Contractor selected by Contractor, as known as Domestic Sub-Contractor.

4.0 Procedure for appointing Specialist Contractor for NEC3 ECC 05

Under NEC 3, clause 26.1, If the subcontractor nominated by Contractor, the Contractor is responsible for Providing the Work no matter the Contractor intention to subcontract work or not.

Fee on Contractor’s own work using the direct fee percentage and a separate Fee on work done by a Subcontractor using the subcontracted fee percentage;

For subcontracted work when assessing compensation events, may use a rate or lump sum by agreement in certain circumstances.

Under NEC3 option B 05, Clause 26.2, the Contractor submits the name of each proposed Sub-Contractor to the Project Manager for acceptance.

The Contractor cannot appoint a proposed Sub-Contractor until the Project Manager has accepted him. Project Manager may not accept the Sub-Contractor because of his appointment will not allow the Contractor to Provide the Works.

Under NEC3 option B 05, Clause 26.3, the Contractor shall submit the proposed conditions of contract for each subcontract to the Project Manager for acceptance.

Project Manager may not accept when the NEC Engineering and Construction Sub-Contract or the NEC Professional Services Contract is stated. Or the Project Manager has agreed that no submission is required.

Under NEC3 option B 05, Clause 26.3, Project Manager shall accept the proposed conditions of contract before the contractor can appoint a Sub-Contractor.

Project Manager may reject the appointment of the Sub-Contractor if the proposed conditions of contract not allow the Contractor Provide the Works. Or the proposed conditions of contract do not include a statement that parties to Sub-Contractor shall act in a spirit of mutual trust and co-operation.

A person selected from the list by Project Manager shall be a Sub-Contractor, as known as Named Sub-Contractor. The Named Sub-Contractor is, for all intents and purposes, a Domestic Sub-Contractor.

If Project Manager rejected the Sub-Contractor in the list based on NEC3 option B 05, Clause 26.3, Contractor has to amend the conditions of sub-contracting until the Project Manager had accepted it. Such delay, Contractor has to pay the loss and/or expenses occur during the delay.

If Project Manager rejected the Sub-Contractor in the list not based on NEC3 option B 05, Clause 26.3, Contractor has to choose other Sub-contractors and named in the list. If Project Manager cannot give a reasonable reason of reject, such loss and/or expenses occur during delay shall Project Manager to bear.

5.0 Review the Nominated

Sub-Contractor

in UK

5.1 Review of Nominate Sub-Contractor used in previous contract form

According to Electrical & Mechanical Contractor Magazine (2005), the reasons for nomination are:

The Client/ Employer can select the Specialist Contractor it wants,

The Client/ Employer can obtain design and value engineering input and have direct access during the progress of works, delay can be prevented on the project as well.

The Nominated Sub-Contractor benefits by having much greater certainty of payment.

Atkinson, D. (1999), stated the reasons for nomination are:

The Employer is able to choose which company he wishes to use and that decision does not have to be based on price.

The Nominated Sub-Contractor can be involved early and so his design expertise and his knowledge of the contract and co-ordination of services can be utilised.

The Nominated Sub-Contractor is made part of the contracting team being fully involved, if required.

Clear contractual liability is established providing a clear line of responsibility to the employer.

5.2 Review of Nominated Sub-Contractor had been discontinued

According to Electrical & Mechanical Contractor Magazine, 2005. Most forms of contract allow the Contractor to claim an adjustment of completion date for delay caused by a Nominated Sub-Contractor, which the Contractor has taken all reasonable measures to prevent. In this situation, Contractor is easy to make a claim and very difficult to refute.

Clients now prefer to pass on the risk of appointing Sub-Contractors to the Contractor. The naming procedure allows clients to keep some control on Sub-Contractor selection without having to take responsibility for performance.

Karnick, M. (2009) stated that old nomination system may cause delay and Contractor entitled to adjustment of completion date and loss and/or expenses.

To Employer/ Client

Employer no needs to bear the cost of determination of the Domestic Sub-Contractor, but Named Sub-Contractor.

More manageable of the progress of the sub-contract work, Contractor is not responsible for the delay of Nominated Sub-Contractor; but he is responsible for Domestic Sub-Contractor and Named Sub-Contractor.

More manageable of the progress of the sub-contract work, Contractor is not responsible for defective design by Nominated Sub-Contractor; but he is responsible for Domestic Sub-Contractor.

Employer/ Client can appoint Named Sub-Contractor at design stage before appoint the Contractor.

Employer/ Client has a direct link with Sub-Contractor in respect of design.

Employer/ Client has no responsibility for the performance of Named Sub-Contractor.

But Contractor has no responsibility for the design work carried out by Named Sub-Contractor.

The Client/ Employer or his Quantity Surveyor values the sub-contractor’s work. This valuation is shown as a separate amount on the Interim Certificate and is notified to the sub-contractor. In the event that the main contractor does not pay the stated amount by the due date, the Sub-Contractor can then ask for payment direct from the Client/ Employer.

To Architect/ Contract Administrator/ Project Manager

Architect/ Contract Administration/ Project Manager need to be consent if Contractor intended to nominate a Sub-Contractor.

To Quantity Surveying

The Client/ Employer or his Quantity Surveyor values the sub-contractor’s work. This valuation is shown as a separate amount on the Interim Certificate and is notified to the sub-contractor. In the event that the main contractor does not pay the stated amount by the due date, the Sub-Contractor can then ask for payment direct from the Client/ Employer.

6.0 Conclusion

Contract forms need to be updated, amended, merged and retired to reduce the conflict of the contract. In JCT SBC 05, Nominated Sub-Contractor had been discontinued because of many conflicts happened in past few years from 2005.

Nominated Sub-Contractor had been discounted to improve the management of the progress of the sub-contract work. Previously, Contractor will not responsible for the Nominated Sub-Contractor’s delay, and Contractor entitled to Adjustment of Completion Date and loss and/or expenses. Nowadays, Contractor is more responsible for sub-contract work.

In my opinion, I think that the new Specialist Sub-Contractor appointment procedures had makes it simpler. Due to many conflict happened between Nominated Sub-Contractor and Contractor, this is one of the solution to lower the conflict. Sub-Contractor and Contract shall have mutual trust and co-operation to each other.

Besides, I think the new Specialist Sub-Contractor appointment procedures will really helps in the management of the progress of the sub-contract works. Contractor will more care about the sub-contract works, and ensure the sub-contract works always in schedule and maintain with good quality.

There is no best way to reduce the construction conflict to zero, but to prevent the conflict happened. I think this Specialist Sub-Contractor appointment system may help in reduce conflict in construction industry.

7.0 Reference

Alberta Labour Relations Board, (2002). True Employer and Subcontractor [pdf] 1 June. http://www.alrb.gov.ab.ca/procedure/24(f)(ii).pdf [Last Accessed 25 July 2009]

Atkinso.D, (1999). Subcontracting [online] 1 June. http://www.atkinson-law.com/cases/CasesArticles/Articles/SubContracting.htm [Last Accessed 25 July 2009]

Barnes, P., 2008. JCT 05′ & 06′ Contracts. [pdf] 25 January. Available at: http://www.arbitrate.org.uk/speakers_papers/Peter%20Barnes%20JCT%202005%20%20CIArb%2023-01-08.pdf [Last accessed on 26 July 2009]

Brand, D., 2009. Contract nominations. [Online] 5 January. Available at: http://cmguide.org/archives/315 [Last accessed on 23 July 2009]

Brian, E. Rawling & Associates, 2003. Nominated or Names? [pdf] 27 September. Available at: http://www.brianerawling.com/PDF/Jun%2001%20~%20Nominated%20or%20Named.pdf [Last accessed on 26 July 2009]

CC&L Department, 2005. What Sort of Subbie Are You? [pdf] March. Available at: http://www.eca.co.uk/IndustryGuidance/CCandL/Download/WhatSortOfSubbieRU.pdf [Last accessed on 23 July 2009]

Chappell, D. (2007). Understanding JCT Standard Building Contracts. 8th Edi. Taylor & Francis. London & New York.

Karnick, M., 2009. Nominating the best project subcontractors. [Online] 12 July. Available at: http://cmguide.org/archives/1357 [Last accessed on 23 July 2009]

Murdoch, J. & Hughes, W. (2009). Construction Contracts: Law and Management. Taylor & Francis. London & New York.

Office Of Government Commerce (2005). NEC3 Engineering and Construction Contract: Option B: Priced Contract with Bill of Quantities. 3rd ed., Great Britain, Bell & Bain Limited.

Price, J. (1994). Sub-Contracting under the JCT Standard Form of Building Contract. Macmillan.

Ryland, J., 2004. Nominated Sub-contractors- What’s in name? [pdf] 2 January. Available at: http://pprn.crippslaw.com/index2.php?option=com_content&do_pdf=1&id=63 [Last accessed on 23 July 2009]

RICS, 2005. A comprehensive guide to help you move from JCT 98 to JCT 05. [pdf] 3 May. Available at: http://www.ricsbooks.com/downloads/CONTRACT%20FINDER.pdf [Last accessed on 26 July 2009]

Standard Form of Building Contract (1998). Local Authorities with Quantities. Great Britain, The Joint Tribunal Limited