The reasons why nomination (south of Watford) appears to have fallen into disuse are myriad. Clearly an analysis of the balance of risk in relation to nominated subcontractors persuades many employers that it is not for them: the main contractor does not accept the risk of design carried out by nominated subcontractors, nor the risk of delay, nor the amounts payable in the bills and it does not accept the risk of determination/insolvency. Essentially, the main contractor carries only the risk of latent defects in workmanship. Why pay the contractor’s mark-up for this alone?
The complexity of the nominated subcontractor documentation and the difficulties of filling it in precisely are beyond many employers and their teams. It is fair to say that the contracting industry, too, rarely responds with documentation that is completed as intended. The 1980 documentation was just too complex, and has not changed for the better since.
But, while turning their back on nomination, employers and their professional teams still want to have a say in selection of subcontractors and recognise that, in fairness, they cannot simply impose their view unilaterally on the main contractor after the contract has been executed. So what do they need?
The ability to state in the contract documents a named subcontractor, or rather more commonly a list of subcontractors, for work to be priced by the contractor or for provisional sum work. If the contractor objects to these subcontractors, it can do so at tender stage and his objection can be considered as part of the tender evaluation process. If, having signed the contract, the main contractor cannot use the subcontractors named or listed, a replacement must be agreed.
It also needs the right subsequently to name or agree a subcontractor, subject to the contractor’s right to reasonable objection. The employer does need to ensure, however, that naming does not inflate pricing, so it will rarely want to insist on a single source – particularly if the contractor partners with other subcontractors.
If the parties do agree a mechanism for selecting subcontractors and a subcontractor is employed, the employer would expect the contractor to accept the risk of subcontractor default across the board. Why should it be otherwise?
The exception might be subcontractor insolvency where some “sharing” of risk might be appropriate, given that this is something that presumably neither party could foresee.
Is this so unreasonable?
(For the record I am from north of Watford, as are many of our clients who do not use nomination!)
Ann Minogue is a partner in solicitor CMS Cameron McKenna.