By Uwe Putlitz
Uwe Putlitz takes us through the ins and outs of standard-form subcontracts to broaden our understanding of the topic. We kick off this month with part one.
 |
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.
More info: info@buildstrat.co.za |
In order to get to grips with subcontracts, it’s important to understand what a subcontractor is.
A subcontractor, like a contractor, undertakes to provide labour and materials to execute described works within a defined period for an agreed payment. Such a written (or spoken) agreement is enforceable by law. The principal contractor (PCr) is appointed by the employer. A subcontractor is appointed by the PCr using a ‘back-to-back’ ancillary agreement binding the subcontractor to the same performance conditions applicable in the principal contract (PC).
Subcontractors are chosen by following a procurement process appropriate to the project. A ‘domestic subcontractor’ (DS) is appointed by the PCr generally for ‘wet’ trades such as bricklayers and plasterers, without instruction from the principal agent/contract administrator (PA/CA). No provision exists for a direct payment from the employer on default of the PCr, nor is the PCr entitled to a revision of the date for practical completion where a DS is at fault.
It may be appropriate to invite potential specialist (sub)contractors early during the design phases as part of the procurement process – to be appointed as a ‘nominated’ subcontractor (often before the PCr is appointed) or as a ‘selected’ subcontractor (term only used in JBCC agreements – where the PCr is involved). A ‘provisional sum’ for the supply and installation of such work as part of the contract sum is included in the tender document/bills of quantities.
A ‘selected subcontractor’ (SS) is appointed by the PCr in consultation with and on instruction from the PA/CA for ‘specialised’ work that may include the ‘design’ of utility services or finishes, etc, typically based on long-standing successful business relationships – the PCr is at risk for the correct and timely execution of the work by a ‘selected’ subcontractor.
A ‘nominated subcontractor’ (NS) is appointed by the PCr on instruction from the PA/CA for specific work described in the tender documents. The PCr is not involved in the selection process – but may object to such an appointment on ‘reasonable’ grounds where such NS may “lack the competence and/or the capacity to execute the subcontract works within the specified period and/or budget.” As the PCr is exposed to greater risk due to the poor or non-performance by a NS, the PCr may be entitled to an extension of time and/or additional costs in the event of default.
| Note: Some employers seek to ‘nominate’ a subcontractor and force the contractor to appoint him/her as a ‘selected’ subcontractor to pass the non-performance risk to the contractor. This practice is unethical.
Note: If the employer and/or agents choose to call for tenders for subcontract works before the contractor is appointed such appointment must be as ‘nominated’ subcontractors. Note: The employer is not a party to any ‘subcontract agreement’ and there is no privity of contract between the employer and a ‘nominated/selected subcontractor’. Note: Why tender? The advantages of tendering are to provide competition within the industry and therefore reduce costs. Iacobucci[1] stated that “a prudent owner would also consider the capability and experience of the contractor and how realistic the tender price was…” Note: The employer cannot negotiate a price with some tenderers after tenders have been received. |
| The employer may appoint a direct contractor (DC) (a term only used in JBCC agreements) for unique aspects of the project, with the consent of the PCr. The PCr is not responsible for the correct or timely execution of the works or payments – but is responsible for compliance with statutory health and safety regulations by a DC. The tender document/bills of quantities may include a ‘prime cost’ amount in the contract sum for the delivered cost of materials and goods from a specified supplier. No industry-specific standard supplier agreement is in common use. |
Standard-form subcontracts (SfS)
In South Africa, the Construction Industry Development Board (CIDB) recognises the standard-form contracts (SfC) published by the International Federation of Consulting Engineers (FIDIC) published in Switzerland in English and French, the General Conditions of Contract (GCC) published by the South African Institution of Civil Engineering, the Joint Building Contracts Committee (JBCC) representing ten local industry bodies, and the New Engineering Contract (NEC) published by Telfords on behalf of the Institution of Civil Engineers in London to appoint Contractors to undertake building and engineering work generally and for Organs of State.
- FIDIC 2017 – No information is available at the time of writing
- FIDIC 1999 – No information is available at the time of writing
- GCSC 2018 – Aligned with GCC 2015, comprehensive
- GCC 2010 – No subcontract form published
- JBCC SfS 2018 – Refers to ‘interim completion’ before practical completion, ‘damages’ instead of ‘penalties’ and a ‘payment advice’ issued by the contractor as an acknowledgement of debt (liquid document), including clause 25.14 to delay the subcontractor’s payment by 30 days if the contractor has not been paid
- JBCC SfS 2005 – Similar to 2018 but more onerous conditions to delay the subcontractor’s payment by 90 days if the contractor has not been paid
- JBCC Direct Contractor Contract 2020 – as a stand-alone contract with the employer
- NEC4 – No information is available at the time of writing
- NEC3 – No information is available at the time of writing
- Also, refer to the CIDB “Best Practice Guideline # D1 dealing with ‘subcontracting arrangements’”
In the typical (build only) or (employer design/contractor execution) SfC, the PCr’s obligations vis-a-vis the employer and contractors are described and likewise, the respective rights and obligations between the PCr and a subcontractor are described in a SfS. All publishers of SfCs offer synchronised standard-form subcontracts (SfS) aligned with the respective PC. PA
Part two continues in our September issue.
