Paul Jackson explores the position of a uniquely named subcontractor
Traditionally, when an employer wanted a specialist portion of the works to be undertaken, they used the nomination procedure. This had advantages for both the employer and the subcontractor. For instance, subcontractors were assured that, when pricing the works, there was a limited number of tenderers on the employer’s list.
The Joint Contracts Tribunal (JCT), in its 1980 Standard Form of Building Contract, codified the procedure to accord with contract law by introducing an invitation and cross-party agreement mechanism. Although well intentioned, this system proved too cumbersome for the industry participants to operate. For this and other reasons, the system fell into decline.
The more recent JCT 2005 series of contracts no longer has a nominated subcontract. The only procedure that enables any form of employer/subcontractor specification is the naming provisions of the Intermediate form.
Here I want to consider the position of a subcontractor who is uniquely identified as the preferred specialist subcontractor.
Many subcontractors, having formed a relationship with the client or their representatives, then find themselves employed by an intermediary contractor. They may still consider that they are ‘nominated’.
Contractually, nothing could be further from the truth. Without either an express arrangement and agreement, nor the use of a modified series of the old JCT forms, a subcontractor employed in this fashion will be nothing more than a domestic subcontractor.
So when pricing work direct to the design engineer, it is important to clearly state your expectations in regard to methodology, hoisting and protection arrangements. Also state expectations with regards to attendances, price validity, discount, payment and any other contractual terms.
Pay particular attention when passing ‘title’ on materials, and when materials are classified as ‘fully and finally fixed’.
Consider too the use of the term ‘excluded’. For instance, the expression ‘travelling time is excluded’ has been misunderstood to mean that no travelling time will be charged.
The project insurance policy should also jointly name the subcontractor as being insured. Remember, when the quotation is appended to an order from the builder, this is nothing more or less than an offer. This is one ‘blind date’ you could refuse if the terms are unacceptable.
Design advice provided free of charge still creates, in law, a liability. In addition, it must be made clear just what the subcontractor is prepared to do and by when. Without this, relationships can be fouled.
It makes good sense for the designer to consult with the specialist subcontractor. However, be wary of entering into an agreement to procure materials or even start preliminary works without being certain just who the other contracting partner is.
Obligation to pay
It is not uncommon, when problems arise, for there to be a difficulty in establishing just who has the legal obligation to pay. For this reason, a written agreement is required.
While it may be expedient to pass information back and forth between the specialist and lead designer, recognition must be given to the contractual chain. Variations or matters that may impinge on the progress of the works must be duly costed and notified through the contractor. Requests to cost direct to the engineer should be resisted, as there may be ramifications of which the specialist is unaware.
The Construction Act permits the use of ‘paid when paid’ in the event of third-party insolvency. A domestic subcontractor, however, is more frequently at risk of main-contractor insolvency.
By not nominating the subcontractor, the employer has no right to expect, upon termination for insolvency, the works to be finished for the original price.
Clients have devised a way
of maintaining an ongoing relationship with their key specialists, and in the event of main contractor insolvency. This has been achieved by the incorporation of ‘step in’ rights into the most commonly drafted versions of collateral warranties.
Subcontractors may be confused into thinking that this affords a degree of protection. But before assuming responsibility for any outstanding payments, clients will be keen, for their own benefit, to establish just exactly what is due.
So it is also very important to ensure that the payment notice provisions required by the Construction Act are strictly observed. Pressure should be brought to bear on any dilatory main-contractor performance in this respect.
Electrical and Mechanical Contractor
Paul Jackson is commercial adviser at the ECA