Monday, May 10, 2004

Sub-Contracting & Nominated Sub-Contracts

Most standard forms of contract contain provisions, which grant the employer the right to nominate sub-contractors for certain works or supplies. This usual procedure is for the architect to negotiate terms with the sub-contractor and on settlement of the terms of the sub-contract, the main contractor is directed to enter into the sub-contract with the selected sub-contractors. This was basically devised to afford the employer a means of controlling the quality of work covered by the sub-contract while at the same time ensuring that a competitive price is secured for the said works.

Considerable difficulties have been encountered with the system of nominated sub-contractors. Firstly, it has proven difficult to make main contractor accountable for the actions of the sub-contractors since it is often presumed that the main contractor has very little control over the sub-contractors’ work. The common standard forms apparently accept this rationale and frequently provide that in the event of delay on the part of nominated sub-contractor, the main contractor shall be given an extension of time; a situation which leaves the employer without any remedy for a breach on the part of the sub-contractor (see: Westminster City Council v J. Jarvis & Sons Ltd and Anor (1970) 1 All E.R. 943). The employer if further exposed to claims for delay if there is late nomination or if the original nomination have fallen out for same reason fails to renominate (see: North West Metropolitan Regional Hospital Board v T.A. Bickerton & Sons Ltd. (1970) 1 All E.R. 1039).

However, under the PAM 1998 Form, a contract may require the main contractor to be responsible for a nominated sub-contractor in such a manner as to reimburse the employer for any loss and expense arising out of a default on the part of the nominated sub-contractor.

The payment of nominated sub-contractors is effected by including the value of their works in a payment certificate issued to the main contractor. Since there is no privity of contract between the sub-contractor and the employer, the employer, in the absence of any provision in the main contract cannot elect to pay the sub-contractor direct (see: Milestone & Sons Ltd v Yates Brewery (1938) 2 All E.R. 439).

A number of recent cases concern the situation where an architect may have nominated a sub-contractor on certain terms, but the main contractor, instead purport to enter into the sub-contract on terms different from those on which the nomination was placed in the first place. If the sub-contractor thereupon proceed on the terms offered, the latter set of terms would apply in lieu (see: Modern Buildings wales Ltd v Limmer & Trinadad Co. Ltd (1975) 2 All E.R. 549; A. Davies & Co. (shopfitters) Ltd. V William Old Ltd (1969) 67 L.G.R. 395).

Sub-contracting work give rise to many problems, whether or not the sub-contractor involved is nominated or appointed by the main contractor. The basic principle is that the main contractor is responsible for the acts and defaults of his sub-contractors so far as the employer is concerned.

If the main contractor is sued by the employer in respect of alleged defects in workmanship, materials or goods and claims that these are the responsibility of a sub-contractor, nominated or otherwise, he can bring the sub-contractor concerned into the legal proceedings as a third party, claiming indemnity from the sub-contractor in respect of the changes which he may be ordered to pay the employer and for his own costs. The fact remains however, that if the third party proceedings, the sub-contractor disputes liability; it is the main contractor to prove the case against him. Once liability has been established (or admitted) then the amount of any compromised settlement is relevant evidence of the damages recoverable against the defaulting sub-contractor.

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