Sub Contract Agreement

•In a building project there is always a contractor.•There need not be any sub-contractors•However there will invariably be sub-contractors.•There are two types of sub-contractors ‘Domestic’ and ‘Nominated’•The main contractor will have a contracts with both types of sub-contractors.•The conditions of main contract will only require a formal sub-contract agreement with ‘Nominated’ sub-contractors

Sub Contract Agreement (cont.)

• The nominated sub-contractors agreement is expected to be on the standard form produced by FIDIC when the FIDIC (Red Book) Is used as the form of contract.

• The sub-contractors are ‘recognised ‘in the Red Book

• For domestic contractors,the form of contract is not specified and as they are not ‘recognised’ under the main contract.

Sub Contract Agreement (cont.)• This agreement too consists of the 20 main

clauses as in the other FIDIC documents.• The clauses cover similar aspects as in the

FIDIC red book.• They differ as far as the difference in their

application to the Sub-contractor as against the Main contractor.

The 20 Clauses of the ContractsMain Contract Agreement

1 General Provisions2 The Employer3 The Engineer4 The Contractor5 Nominated Sub-Contractor6 Staff and Labour7 Plant, Materials & Workmanship

8 Commencement Delays and Suspension

9 Tests on Completion10 Employers taking over

Sub-contract Agreement

1. Definitions and Interpretations2. The Main Contract3. The Contractor4. The Sub-Contractor5. Assignment of Subcontract6. Co-operation Staff and Labour

7. Equipment, Temporary works, Other facilities Plant & Materials

8. Commencement & Completion

9. Tests on Completion10. Completion & Take over of the

Sub-contract works

The 20 Clauses of the Contract11 Defects Liability12 Measurement and Evaluation13 Variations and Adjustments

14 Contract price and Payment15 Termination by employer

16 Suspension & Termination by Contractor

17 Risk and Responsibility18 Insurance19 Force Majeur20 Claims Disputes and Arbitration

11 Defects Liability12 Measurement and Evaluation13 Subcontract Variations and

Adjustments14 Subcontract price and Payments15 Termination of the main

contractor & Termination of the Subcontractor by the contractor

16 Suspension and Termination by Subcontractor

17 Risk and Indemnities18 Subcontractor Insurance19 Subcontract Force Majeure20 Notices Subcontractor’s claims

and disputes.

Scenario 1• A domestic sub contractor is engaged on a

project by the main contractor.• He has problems in getting access to his area

of work as another crew are busy there.• He approaches the engineer to the contract

for assistance.• But the engineer refers him back to the main

contractor without giving him a solution.

Comparison of 20 ClausesFIDIC MAIN CONTRACT

1. General Provisions• Total privity of contract

with Employer (see cont. agreement)

• Covers general topics such as definitions, interpretations, documentscommunications

FIDIC SUBCONTRACT1 Definitions &

Interpretations• No privity of contract with

Employer (Cl.1.10)

• Covers general topics such as definitions, interpretations, documentscommunications

Comparison of 20 ClausesFIDIC MAIN CONTRACT2 The Employer• Obligations of the

employer.

FIDIC SUBCONTRACT2 The Main Contract• The employer here is

substituted by the Main Contract

• Knowledge of Main Contract, Compliance with it, Instructions, Determinations, Rights, Entitlements & remedies derived under Main Contract.

Comparison of 20 ClausesFIDIC MAIN CONTRAC3. The Engineer• Appointment,Duties, and

rights) of engineer.• All Determinations,

instructions by Engineer, on authority derived from employer

• FIDIC SUBCONTRACT3. The Contractor• No direct connection to

engineer, other than via Main contractor, under the control of Main Contractor.

Scenario 2• A Sub contractor is engaged by the main contractor.• The engineer notices the work being done is not precisely

according to the design.• He instructs the subcontractor to alter it accordingly.• Subcontractor ignores and carries on as he has already

informed the reason for deviation to main contractor.• Engineer sends a strongly worded reprimand to subcontractor• Subcontractor protests to the Main contractor.• Where did it go wrong?• Communication breakdown?

Comparison of 20 Clauses• FIDIC MAIN CONTRACT4. The Contractor• Extensive clause (24 sub

clauses) dealing with rights, obligations etc. of contractor under the contract.

• Subcontracts to have provisions for assignment of subcontracts or benefits thereof to owner in the event of Contractor’s termination or if his obligations extend beyond DNP.(Cl.4.4, 4.5)

• FIDIC SUBCONTRACT5. The Sub-Contractor• Clause dealing with rights,

obligations etc. of Subcontractor under the sub contract agreement.

• Need to provide Sub contract

Comparison of 20 Clauses• FIDIC MAIN CONTRACT4. The Contractor• No provision to provide

separate sub-contractor performance security by main contractor under the contract.

• Need to provide Performance Security to Owner

• FIDIC SUBCONTRACT5. The Sub-Contractor• Need to provide Sub

contract Performance Security to Contractor

• Sub-contractor to permit both employers and contractors personellaccess at all reasonable times to inspect, examine, measure, test and see progress.

Comparison of 20 Clauses5. Nominated Sub-Contractor

• Defined as S.C. stated in Contract or (under Cl.13)instructed by Engineer to employ.

• Main contractor to include payments to SC in his interim claims, require evidence of payment of same.

• Provision to pay the SC directly by owner

5.Assignment of Subcontract and Subcontracting.

• Nominated as subcontractor by Main Contractor

• Circumstances of assignment of part or whole of subcontract and provisions for assignment of benefits to Main contractor.

Comparison of 20 Clauses6. Staff and Labour• Policies to be adopted in

recruiting , facilities to be provided, adherence to labour laws, working hour restrictions OH&S requirements,

6. Co-operation, Staff and Labour

• Co-operate with Owners and other contractors personell by providing access to carry out their work.

• For both the main Contractor and The subcontractor to refrain from recruiting staff from each other.

• Requirement to appoint a representative for both main and sub-contractor

Comparison of 20 Clauses7. Plant, Materials &

Workmanship• Need to carry out all aspects

of construction as specified in contract and to recognisedgood practice.

• Facilitate inspection and testing.

• Right to reject and require rectification.

• All materials and plant becomes the property of Owner when brought on site or when contractor is entitled to payment subject to laws of land.and may not remove. from site

7. Equipment, Temporary works, Other facilities Plant & Materials

• Contractor to make available employers equipment, contractors equipment temporary works and other facilities required for performance of subcontractors work. Who will be responsible for same.

• Same applies to free issues.• All subcontract plant and

materials forming permanent work become the property of Contractor.and may not remove from site

Comparison of 20 Clauses8. Commencement Delays and

Suspension• Requirement to commence

progress and complete on time as per program.

• Engineer to monitor program and require contractor to revise program in the event of non compliance with program.

8. Commencement & Completion

• Requirement to commence progress and complete on time as per subcontractor program complying with main contractor program and reporting to be consistent with same. Contractor to monitor and require revision in the event of delay.

• Eligible for EOT under specific circumstances beyond his control.

• Contactor’s right to issue instructions and impose delay damages.(Cl.8.7)

Comparison of 20 Clauses9. Tests on Completion

• Testing, rectifications, retesting and procedure adopted in delayed testing specified.

9. Tests on Completion• Tests specified for sub-

contract work shall be done with due notice

• If Main contractors tests, are dependant the subcontractor shall complete his in good time to facilitate.

Comparison of 20 Clauses10. Employers taking over

• Engineer to take over and issue takeover certificate.

• Partial taking over can only be done at the sole discretion of the owner.

10. Completion & Take over of the Sub-contract works

• Main Contractor to take over subcontractors work on completion and issue take over certificate.

Comparison of 20 Clauses11.Defects Liability 11. Defects Liability

• All works referred to in Main Contract (Cl.11.1(b) shall be executed by and to cost of Subcontractor. For plant and work executed by him.

• Cost implecations to Main contractor consequent such can be deducted by Main contractor.

• SC DNP is as stated in SC contract.

• Performance is such isued by Engineer under Main contract.

Scenario 3• A subcontractor engaged on a project

completes his assigned work.• He approaches the engineer to the contact

and requests that work be taken over.• He refuses to do so and refers him to his main

contractor.• The main contractor informs him that he has

not completed the main part of the work that the subcontractors work is part of.

• Was he correct?

Comparison of 20 Clauses12. Measurement and Evaluation• Engineer to measure works

attended by Contractor• When measured by records

the contractor may attend.• Net actual quantities used

12. Measurement and Evaluation• Engineer to measure works

attended by Contractor to which he shall permit the SC to attend.SC shall supply any particulars requested by Contractor or Engineer. Measurement from records similar to that of Main contractor.

• Any quantities shown in SC’s BOQ is to be considered only as an estimate. Measured quantity prevails and rate remains unchanged. Other than by instruction.

Comparison of 20 Clauses13. Variations and Adjustments• Where the contract so

states variations and adjustments are possible for:

• Value Engineering, Currency fluctuations, PC variations, Adjustments for changes in legislation and changes in Costs

• Variations to be authorised by Engineer.

13. Subcontract Variations and Adjustments

• Subcontractor variations by Contractors Instruction only

• Engineers instructions must be conveyed by main contractor as a contractors instruction. Subjects for variation shall be as for main contractor.

• The sub contractor can be requested to provide a proposal for variation.

Comparison of 20 Clauses14. Contract price & Payment 14. Contract price & Payment

• Subcontractors payments are chanelled through main contractors.

• His claims are included with the main contractors periodic payment claims.

• Employer has the right to require proof of payments to SC by the Main Contractors.

• Provision in Main contract to make direct payments to SC.

Comparison of 20 Clauses15. Termination by employer 15. Termination of the main

contractor & Termination of the Subcontractor by the contractor

• Termination can be consequent to termination of main contractor.

• Contractor is entitled to terminate the subcontractor under certain circumstances.

Comparison of 20 Clauses16. Suspension & Termination

by Contractor16. Suspension & Termination

by Subcontractor• Subcontractors right to

suspend work for non payment. Entitled to claim any consequential loss.

• Subcontractors right to terminate if payments not received after suspension or contractor becoming insolvent or bankrupt or fails to perform his obligations under subcontract.

Comparison of 20 Clauses17. Risk and Responsibility 17. Risk and Indemnities

• Subcontractor to have full responsibility for care of subcontract works and goods from commencement to take-over.

• Subcontractor to make good any damage or loss.

• Contractor to hold subcontractor harmless in the event of loss or damage attributable to contractor

Comparison of 20 Clauses18. Insurance 18. Subcontractor Insurance

• Subcontractor to maintain insurances against risks as specified and maintain these from commencement of subcontract to taking over by main contractor.

• The main contractor and or the employer also may take insurance cover for subcontractors work.

• Subcontractor to satisfy himself as to adequacy.

Scenario 5• On a project the Main contractor obtains insurances to cover

the entire project.• The subcontractor is of the opinion that the cover is not

adequate.• He requests the engineer to the contract and offers to take

the balance cover.• What should be the correct procedure to follow.

Comparison of 20 Clauses19. Force Majeure 19. Subcontractor Force

Majeure• The provisions of Main

contract Cl.19 applies to the Subcontract

Comparison of 20 Clauses20. Claims Disputes and

Arbitration20. Notices Subcontractor’s

claims and disputes.• Whenever contractor is

required to give notice or other information in support of a claim under main contract of which SC work is part of he is obliged to keep such records when requested by main contractor to do so.

• Failure may result in SC’s claim being denied due to lack of info.