What happens when the client wants to have its cake and eat it by choosing the subcontractors but making the main contractor wholly responsible for their performance?
Based on the principle of single point responsibility, the client often wants to have its cake and eat it by choosing the subcontractors but making the main contractor wholly responsible for their performance. As a result, the concept of the nominated subcontractor has become commonplace in construction.
A client is really only interested in having one entity to take responsibility for performance and while it may want a particular subcontractor to carry out a particular trade, it will not want to nominate that subcontractor. By way of example, under the JCT forms of building contract a contractor will not usually take the risk of delay caused by nominated subcontractors, but may find that it ends up paying for items such as overheads and profit for it to “supervise” nominated subcontractors.
A frequent building contract amendment is to classify all subcontractors as domestic. This removes the risks related to subcontractor nomination and subcontractor financial viability.
One has to very careful about the accuracy and use of the descriptive terminology for subcontractors
Using a label may not be enough to establish the true role of the subcontractor. There has not much case law on this topic but the issue was considered in the case of St Modwen Developments Limited vs Bowmer & Kirkland Limited (1996).
Here, the JCT contract provided a domestic subcontractor procurement procedure but what actually happened was that the architect or engineer on behalf of the employer went to certain subcontractors for specialist works. When a subcontractor was identified, the contractor was instructed to place an order with the pre-selected subcontractor. It was held that the procedure meant that subcontractors were treated in all but name as nominated subcontractors and that the employer and its design team had changed the method of subcontractor procurement.
The valuation of the final account was treated as if the specialist subcontractor was nominated although there was no express declaration by the court that it was actually a nominated subcontractor. This illustrates that one has to very careful about the accuracy and use of the descriptive terminology for subcontractors.
More recently, in the Scottish case of Mowlen (Scotland) Limited vs Inverclyde Council (2003), a contrary approach was taken. The issue was whether a contractor should be treated as nominated. This case did not involve a specifically named subcontractor but the court said that just because a particular subcontractor was the only one capable of carrying out the design and manufacture of a certain system, this was insufficient to make that contractor a nominated subcontractor. In this case, the client had gone to some lengths to identify the subcontractor it required but still preserved the nature of that subcontractor as domestic partly because there was no express obligation in the contract to go to that particular company.
The purpose of this blog is not to debate the merits of the two contrary positions but simply to identify that if a client wants to have its cake and eat it, it should be careful as to the wording and execution of the recipe.
Laurence Cobb is head of construction at law firm Taylor Wessing