By Uwe Putlitz

Contractual disputes that arise during or toward the end of a project often have their origin in the inception phase when the plumbing subcontractor is not involved.

From published regular surveys of the building and construction industries, most contractual disputes are about money due, more time to complete the works, or that the quality or performance of the finished product does not meet the expectations of the employer.

A plumbing subcontractor, and/or other specialist subcontractors, may be appointed during the design phase, usually as a ‘design-supply and install’ subcontractor.

The employer organisation may have procurement policy – or checklist – that must be followed. Typically, the first criteria of the procurement process would be to solicit bids from contractors who are able to handle a project of a given magnitude, possess the necessary expertise and would be able to meet a fixed completion date.

The employer organisation would also have to consider:

  • How important is performance of the Works by a particular date?
  • Is certainty of the final cost more important than the lowest cost?
  • Where can the risk best be managed?
  • What is the total tolerable risk for contractors?
  • How important is cross contract co-ordination to achieve project objectives?

Another important consideration is how bids are to be solicited – would this be from the market, or only from a selected group of deemed to be competent contractors; or is the contract is to be negotiated with a single chosen contractor. For work of a specialised nature, the employer may appoint the specialist as a ‘direct contractor instead of nominated, selected or even a domestic subcontractor and accept the associated performance risk.

If the employer is an Organ of State the published processes for open tenders must be followed, in accordance with the National Treasury Standard for Infrastructure Procurement and Delivery Management.

To invite bids, the employer and internal or independent professionals must prepare a performance specification with reference to applicable local or international standards describing the intended final product.

The subcontractor should be ‘appointed’ as a nominated ‘specialist’ subcontractor by the employer as the principal contractor is less likely to have been appointed at this stage. While no privity of contract exists between the employer and the nominated subcontractor, the subcontractor has the advantage of direct contact with the employer through the employer’s professional team. The subcontractor must maximise his/her position as an expert in the stipulated field to develop the optimum design solution that is practical, cost effective, and low in maintenance, among other advantages.

As such design solution would have been evolved by involvement with the relevant stakeholders, there should be no debate when the project is implemented about the chosen design concept, product selection or quality and operational or maintenance specifications.

Early involvement of a specialist design contractor provides an opportunity to timeously develop the optimum solution and source better ‘constituent products’, at a competitive price, particularly if large quantities of or many products and accessories are involved.
The employer would choose a nominated subcontractor based on technical, managerial, and financial competence. The principal contractor is not involved – but may, after appointment, question the employer’s choice – and object to such appointment if he can substantiate that the chosen subcontractor’s work elsewhere was poor, delayed or that insufficient capital or other resources for a project of this nature are available. Obviously, one must be wary of fake malignments to secure the work for the contractor’s friends.

The employer can heed such advice if he believes it to be valid or instruct (through the principal agent) the contractor to proceed with
the appointment. The advantage of an early appointment of a nominated subcontractor is to explore the best ‘plumbing solution’ contemporarily with the evolution of the other aspects of the design. Waiting to appoint a selected subcontractor after appointment of the principal contractor may result in late design changes or even delays. All of this makes sense where ‘design’ is involved but is less important if it is an installation-only contract.

Some employers (and consultants) are of the opinion that ‘nominated’ subcontractors are a nuisance to administer and prefer ‘selected’ subcontractors chosen in consultation with the principal contractor after appointment.

What is the difference? The appointment of the subcontractor uses the same JBCC Nominated/Selected Subcontract Agreement issued by the principal contractor to the subcontractor for signature.

The principal differences are that:

  • The contractor chooses a selected subcontractor based on technical, managerial, and financial competence. The employer is not involved – and may not question such appointment.
  • The principal contractor is responsible for the execution of the works by all subcontractors under his control including nominated, selected, and domestic subcontractors.

If the nominated subcontractor fails to proceed with the works with due diligence, the principal contractor must issue a warning to the subcontractor to catch up and make good within a stipulated period, failing which its appointment may be terminated. Such notice must be copied to the employer and the principal agent for information. Should the subcontractor fail to comply, the principal agent must issue a contract instruction to the contractor to terminate the subcontractor’s appointment. Should the nominated subcontractor delay the works after following the notice procedures, the principal contractor may be entitled to an extension of time. Termination of a ‘design subcontractor’ during the installation phase may require careful negotiations as the design may be subject to copyright unless ceded to the employer as part of the initial appointment.

However, should a selected subcontractor delay the works after following the notice procedures, the principal contractor will not be entitled to an extension of time.

The employer/consultant team must decide how to procure services and products that best suit the project. There is not one ‘right’ solution that fits all applications.

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About Uwe

Uwe Putlitz

Uwe Putlitz is a registered professional Architect and Construction Project Manager, a Fellow of the Royal Institute of Chartered Surveyors (RICS) and is a visiting lecturer at the School of Construction Economics and Management at the University of the Witwatersrand. Having recently retired as the Chief Executive Officer of the Joint Building Contracts Committee (JBCC) he specialises in the avoidance of construction disputes by way of lectures, technical articles dealing with aspects of contract administration for various industry publications  arising from the use of Standard-form Contracts including the Federation Internationale des Ingenieurs-Conseils (FIDIC), the General Conditions of Contract (GCC), the JBCC or the New Engineering Contract (NEC) to find an acceptable settlement without resorting to legal processes, where possible.