How to Deal with Delay Caused by a Nominated Subcontractor
Many years ago when I used to regularly deal with the JCT forms of contract. Back then, 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. Once the Contractor has accepted the nomination, he becomes responsible for the actions of the subcontractor. Therefore the Contractor may not claim for any failures of the subcontractor.
But what happens if the Engineer nominates a subcontractor who 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 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’.
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? In this case the Contractor would 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.’
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 be able to claim for damages against the subcontractor, provided that the subcontract contains such provisions. How this would work in the real world? The Employer may impose 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, the outcome 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. If there are any doubts to their capability, they should submit a formal notice of objection.
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In the interest of transparency, the employer should be encouraged to avoid any nomination.
Where a particular contractor has been involved in branded / corporate image / corporate operational standardization works, then it make sense for the nomination and this track record and previous contractual experience should be disclosed in the nomination by the employer. This could be historical or planned.
After all that… sorry, but the main contractor still center of the universe…..
This is a question, who takes responsibility for the delays, unethical behavior since it’s the Nominated Contractor?
is the Client or one has to qualify the nomination since FIDIC dose not clarify.
Part of the Contractors vetting process is to consider if the nominated subcontractors scope is on the critical path and to include provisions in the subcontract to take work off them if they are in delay. Having to choose subcontractors for political reasons is a fact of life with some projects in developing countries.
It may be best – and the Employer can hardly object – if the Contractor asks the Nominated Subcontractor for references, especially for projects where the Employer also has been involved. Questions of collusive behaviour may arise.