Subcontracting in Construction

FIDIC also discuss about that terms in their guidelines, in FIDIC 1999 1st Edition New Red Book it is under Clause No 4.4 and 2017 2nd Edition Red Book it is under Clause No 5.1.

All sub-contract work's in construction industry are going on back to back system. we will pay sub-contractor once after we can claim that amount for that work item from the employer/ client.

There are no condition of contract (form of contract) for the sub-contractor's work in Sri Lanka. All the main contract condition will be apply to the subcontractor. If it's a special circumstances, some condition's may be amend/ change.

Methods of Subcontracting in Construction

There are two type as following.

Domestic subcontracts

Nominated subcontracts

Domestic subcontracts

Subcontractor is selected by the main contractor. Entirely for the benefit of main contractor, so a
‘domestic’ matter. The employer is not normally involved. Negotiation for subcontract price and terms is between main contractor and subcontractor.
Employer’s/ Engineer’s approval may be required depend on the terms of the main contract.
Main contractor is liable for lack of performance by subcontractor.
Payment is made by main contractor.
Same ‘form of contract’ as with nominated subcontract can be used for domestic subcontract.

Nominated subcontracts

Nominated sub-contractors or the work to be nominated are normally identified in the main contract. They are imposed upon the main contractor after the main contract has been entered into. Unlike domestic subcontracts the employer is involved in selecting and in price/ terms negotiations.
Employer/ Engineer issues instruction to main contractor to enter into subcontract with subcontractor Contractor is liable for lack of performance by Subcontractor.
Payments are made by the main contractor. Direct payment by employer is possible, if provided/ agreed
in any of the contracts.

Nominated suppliers – for supply only of materials.

Can be identified (with or without the name) in the contract/ tender document of main contract by including provisions in BoQ as Provisional Sum/ Prime Cost Sum.
Can be named during execution of the works of the main contract for provisional sums items/prime
costs in the BoQ.

Standard forms of main contracts and subcontracts.

FIDIC subcontract titled “CONDITIONS OF SUBCONTRACT FOR WORKS OF CIVIL ENGINEERING CONSTRUCTION”, 1st Edition 1994 for use in conjunction with FIDIC main contract titled “CONDITIONS OF CONTRACT FOR WORKS OF CIVIL ENGINEERING CONSTRUCTION”, 4TH Edition 1987 (Old Red Book)

In Sri Lanka, this subcontract is suitable to use in conjunction with ICTAD Publication (standard form of main contract) SCA/1 of 1989.

FIDIC subcontract titled “CONDITIONS OF SUBCONTRACT FOR CONSTRUCTION FOR BUILDING AND ENGINEERING WORKS DESIGNED BY THE EMPLOYER”- FIRST EDITION 2011 for use in conjunction with FIDIC main contract titled “CONDITIONS OF SUBCONTRACT FOR CONSTRUCTION FOR BUILDING AND ENGINEERING WORKS DESIGNED BY THE EMPLOYER”, FIRST EDITION 1999 (FIDIC (C)/ New Red Book)

In Sri Lanka, this subcontract is suitable to use in conjunction with ICTAD’s main contract form ICTAD/SBD/2

ICE , JCT and other international conditions have similar combinations.

Like obligations/ chain liability

Informal term ‘back-to-back’ is used to mean:
To give the meaning that subcontractor shall assume ‘like obligations’ (‘chain liability’) as the main contract.
Also to mean that subcontract gets paid after main contractor got paid the corresponding amount (‘paywhen-paid’ clause)

Sometimes subcontract operates as a separate contract meaning that the back-to-back arrangement (chain liability) feature will not be available and therefore the contractor will be unable to transfer like obligations to subcontractor.

Use of ‘pay-when-paid’ and ‘pay-when-certified’ clauses are greatly limited by law in the UK, still being used in Asia.

If there is no direct contractual link between employer and subcontractor, employer is not liable to pay subcontractor directly. This is well settled law in the UK.

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Thursday, August 29, 2019