How to Deal with Delay Caused by a Nominated Subcontractor

nominated subcontractor

Many years ago when I used to deal with the JCT forms of contract, if a nominated subcontractor delayed the works, the contractor could use this as a legitimate reason to claim an extension of time. Either things have either changed since then, or not all forms of contract take this view.

Under the FIDIC Red Book form of contract, the Engineer may appoint a nominated subcontractor, but once the Contractor has accepted the nomination, he becomes responsible for the actions of the subcontractor and may not claim for any failures of the subcontractor.

In a situation where the Engineer nominates a subcontractor who has submitted a competitive price but is incapable of providing adequate performance (does this sound familiar at all?) it seems inequitable to make the Contractor responsible when he has had nothing to do with the selection of the subcontractor. Does the Contractor have any recourse in such a scenario? Well, sort of, as we will see.

Sub-Clause 5.2 (Objection to Nomination) states that:

‘The Contractor shall not be under any obligation to employ a nominated Subcontractor against whom the Contractor raises reasonable objection by notice to the Engineer as soon as practicable …’

The sub-clause goes on to list a number of criteria which would be considered as reasonable grounds for objection. If the Engineer or Employer, after receiving an objection, still insist that the subcontractor be employed, then there is an option that the Contractor may employ the subcontractor if:

Employer agrees to indemnify the Contractor against and from the consequences of the matter’.

Consequently, if this indemnity is agreed, then the Contractor may claim from the Employer if the subcontractor causes the Contractor to fail in the Contractor’s obligations.

So, what happens if the Contractor is unaware that the subcontractor is not likely to perform and does not raise a formal objection at the time of the nomination? Sub-Clause 4.4 (Subcontractors) provides that:

The Contractor shall be responsible for the acts or defaults of any Subcontractor, his agents or employees, as if they were the acts or defaults of the Contractor.’

Consequently, as unfair as this may seem, the Contractor has no recourse against the Employer for any defaults or damages caused by the subcontractor.

The Contractor may however be able to claim for damages against the subcontractor, provided that the subcontract contains such provisions. Quite how this would work in the real world, where the Employer imposes substantial delay penalties against the Contractor for delay caused by the subcontractor if there is simply not enough in the subcontractor’s ‘pot’ for this to be pursued gainfully by the Contractor, is uncertain.

If contractors wish to avoid these type of  situations, the message is very clear – they must perform a thorough investigation of the subcontractor at the time of nomination and submit a formal notice of objection if they have any doubts to the capabilities of the subcontractor.

Need a better understanding of the FIDIC forms of contract, the clauses and how to apply them on your projects? Attend our 3-day Practical Use of the FIDIC Contracts Course in Dubai, 16-18 October. Click here for further information. Early bird rates end 28th September. 

Read more from the Claims Class blog:

Crisis for Gulf Construction Companies
Do project consultants understand their obligations with regards to claims? 

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