Roles of Domestic and Nominated Subcontractor - Essay Example

?Construction Law Introduction The roles and responsibilities of an employer with respect to a subcontractor is a very tricky issue, mainly when the designation is changed from a domestic to a nominated contractor. This paper discusses the how the roles and responsibilities change between an employer and subcontractor under a FIDIC 1999 red book contract when the designation is modified from domestic to nominated subcontractor. The paper also discusses the major differences at law from the perspective of UAE civil code and English common law. In order to do this, first it is necessary to understand both the types of subcontractors: domestic subcontractors and nominated subcontractors. Domestic Subcontractor Domestic subcontractor is one whose selection and appointment is completely taken care by the main contractor. The employer plays no part in the selection or the appointment process except for giving consent to the selection and appointment if it is required under the contractual agreement between the employer and main contractor1. Roles and Responsibilities of Employer The roles and responsibilities of an employer with respect to a domestic subcontractor are very limited. The complete responsibility of a domestic subcontractor lies on the main contractor. The employer will play no role in the selection and appointment of a domestic subcontractor, until and unless it is required by the terms and conditions in the agreement. The employer shall be responsible for the subcontractor only if it is stated with a particular condition in the contract. Nominated Subcontractor As per the FIDIC 1999 red book, the definition of a nominated subcontractor is as follows: “Nominated Subcontractor” means a subcontractor: a) Who is stated in the contract as being a nominated subcontractor, b) Whom the engineer, under the clause 13 [Variations and adjustments] instructs the contractor to employ as a subcontractor2. Nominated subcontractor is one where the employer approves, selects or nominates a contractor to carry out a specific task or a subcontract. In order to understand the roles and responsibilities of the employer with respect to a nominated subcontractor, it is first necessary to understand the reasons behind using such a system. There are numerous benefits associated with nominating a subcontractor for an employer. One of the main benefits is that the process of nominated subcontractor gives the employer certain control over the selection of suppliers or subcontractors. This control over the choice and the required performance from the subcontractor ensures certain level of quality for the employer. This privilege is without having to be directly involved with the subcontractor. The choice of subcontractor is entirely rested with the employer even though the main contractor needs to approve the subcontractor. Another benefit is that the employer need not get into any contractual agreement with the subcontractor. This is because the nominated subcontractor will enter into a contract with main contractor and not the employee directly. Hence, the employer will not have any contractual arrangements with the nominated subcontracts. Also there are other reasons that might be responsible for the nomination of a subcontractor such as the proven track record of nominated subcontractor, low pricing or high quality or even certain combination of the two, long term relationship between the employer and subcontractor, etc. The employer can also have a say in the terms and conditions of the subcontractor such as pricing and scope of work. One of the specific situations, where nominated subcontractors are used is when there is a need for a subcontractor to start working prior to the appointment of a main contractor. Such a situation would arise when a specialist task takes more time to complete than the actual construction programme. Hence, in such situations it becomes very beneficial to use a nominated subcontractor. Roles and Responsibilities of Employer Following are the roles and responsibilities of an employer, with respect to nominated subcontractor, that can be directly derived or assumed from FIDIC 1999 red book: The primary role of an employer is to nominate the subcontractor. That is if the employer feels the need to have a subcontractor, then it is the responsibility of the employer to select and nominate the subcontractor. It is the responsibility of the employer to identify the skills and abilities of the subcontractor and define the role or work aspect that the subcontractor will be responsible for. As per sub-clause 5.2, the contractor is under no obligation to appoint a nominated subcontractor if a reasonable objection is raised by contractor with particulars supporting it3. If has the reasoning behind the objection is found to be reasonable, then the employer cannot force the main contractor to get into an agreement with the nominated subcontractor. The employer if chooses to indemnify the contractor against and from any consequences associated with the subcontractor, then the main contractor can be asked to get into an agreement with the subcontractor. The above clause infuses a responsibility on the employer to ensure that the nominated subcontractor meets the criteria responsible for acceptance from the main contractor. Therefore, it is the responsibility of the employer to ensure that the subcontractor is acceptable by the main contractor. Some of the matters that might lead to an objection from the main contractor are: The contractor believes and supports the belief with evidence to show that subcontractor does not have the resources, competence and financial backing to the carry out the work. That is, not enough thought has gone into selection and nomination process of the subcontractor4. It is not mentioned in to the contract that, in the case of misuse of goods or negligence by the subcontractor or any of its employees, the subcontractor shall indemnify the main contractor. The subcontractor will ensure to meet or agree to obligations and liabilities that will enable the main contractor to discharge his liabilities and obligations as per the contract with the employer5. Indemnify the contractor with respect to all obligations and liabilities arising related to the contract between the main contractor and subcontractor as well as those arising from the failure of the subcontractor perform as required. It becomes the responsibility of the employer to ensure that the above criteria are met and any other that might lead to a reasonable objection from the main contractor. The employer must communicate to the subcontractor, the need to meet the criteria. If the criteria are not met and a contract is not reached between the main contractor and subcontractor, the entire responsibility falls back on the employer. The employer has to get into a new independent contract with the nominated subcontractor, which will make it a main contractor and hence all responsibilities associated with dealing with a main contractor, or nominate a different subcontractor. The employer will also be responsible for deciding or negotiating on the legal and commercial terms such as pricing and quality requirements of the subcontractor. One of the main reasons of choosing the nominated subcontractor is the ability to have a say in the pricing as well as the selection process. Therefore, it is the responsibility of the employer to fix the terms and conditions of pricing agreement between the subcontractor and main contractors as well as the employer and main contractor. The employer is also responsible for ensuring that the nominated subcontractor receives the payment from the main contractor. The main contractor needs to furnish the evidence of payment made to the subcontractor or in the failure to make the payment, must provide reasonable evidence for withholding payment or deducting a part of the payment. In the failure to make payment and providing evidence to withhold payment, the employer may pay the subcontractor a part or full payment and then collect the amount back from the main contractor. But the responsibility to ensure that nominated subcontractor lies on the employer. Differences at Law: UAE Civil Code and English Common Law Even though the FIDIC 1999 red book has tried to clearly lay down the rules with respect to a contract between nominated subcontractor and the employer, there are various other issues or discrepancies that rise in the court of law. The following paragraphs discuss how a dispute with respect to a nominated subcontractor is dealt with in UAE Civil Code and English Common Law. It is only when the contractual agreements between all the parties involved that the exact roles and responsibilities can be understood. The provisions or the benefits designed in the FIDIC 1999 red book in order to protect both the main contractor and nominated subcontractor has already been discussed. Provisions such as indemnifying the main contractor from the failure or actions of the nominated subcontractor and direct payment to nominated subcontractor from the employer in case of lapse from main contractor are induced in order to create a balance in the system6. With respect to the UAE Civil Code, a sub-contractor is prohibited from pursing against the employer when the main contractor has lapsed or defaulted in making the payment to the sub-contractor as per Article 8917. Therefore, it is completely the employer’s call to exercise its right and make the direct payment to the subcontractor if the situation arises. This means that if the employer does not wish to make the direct payment, then the nominated sub-contractor cannot pursue against the employer. Therefore, employer is responsible for the payment of the nominated subcontractor only if it wishes to do so or it stated in the contractual agreement. This is the same with the English law too. The main contractor will be wholly responsible for works of subcontractors, be it domestic or nominated. The obligations of the main contractor towards the employer will remain unabated and intact irrespective of the subcontractor being a nominated or domestic. Therefore it is the main contractor and not the employee that will be held liable for the failures caused by delay or neglect of the subcontractor. This supported by English law as well as UAE Civil Code’s Article 890(2)8. This is the reason main contractors are allowed to accept or reject a subcontractor on reasonable grounds. The employer and nominated subcontractor are responsible to each other only when there is a direct contractual agreement between the two. In the absence of a direct contractual agreement between the two, the main contractor will be solely responsible and liable for the employer and vice versa9. In order to bridge this contractual gap, a liability of tort may be imposed on either or the parties. An example of this is the decision of the English House of Lords in Independent Broadcasting Authority v EMI Electronics Ltd and BICC Construction Ltd10. In the case, BICC which was a subcontractor was found liable to the employer IBA as BICC owed duty of care to IBA. Even though there was no contractual agreement between the two, the law may impose liability based on tort. This is both applicable in English law and UAE laws. Employers and subcontractors must be even more careful in UAE as the law allows a party to recover purely for economic loss as opposed to personal injury physical property damage in the English Law. Conclusion The paper has clearly explained the roles and responsibilities of an employer with respect to a subcontractor when the designation changes from a domestic to nominate. It has also explained the Differences at Law with respect to UAE Civil Code and English Common Law. Employers and nominated subcontractors must be careful as the law can find the parties liable based on tort even in the absence of a contractual agreement. Read More