Summatry
Summatry
Summatry
A subcontractor is a person who agrees to perform some or all of the obligations that
the main contractor is obliged to perform under a separate main contract with the
employer.
Subcontracting is the subletting, by the main contractor to the subcontractor, of the
performance of some or all of the main contractor's obligations under the main contract.
Almost all construction work involves subcontracting.
The main contractor will remain responsible to the employer for the completion of the
subcontract works.
The main contract may expressly prohibit the main contractor from subcontracting any or all
of its obligations under the main contract without the employer’s written consent (usually
this consent must not be unreasonably delayed or withheld).
Pros
The main reasons for subcontracting are project-related and business-related.
cons
Subcontracting can have potential drawbacks, such as:
o It might restrain the development of skills and innovation.
o Main contractors lose a degree of management and control over specialist
work.
o Main contractors might form the view that subcontracting is a key part of
their risk management strategy, but this is not a complete approach to risk
management.
o Where risk is passed down the supply chain, it may go too far and become
inappropriate ‘risk dumping’.
o Subcontracting can lead to the industry operating by way of one-off (or
project-specific) teams.
Vertical integration can help to overcome or mitigate some of the potential
drawbacks of subcontracting.
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Types of subcontractors
Nominated subcontractors are selected by the employer and the main contractor is
required to enter into a subcontract with them. This type of subcontractor is not common
anymore.
Named subcontractors are named by the employer in the main contract and the main
contractor is required to employ them. This type of subcontractor is more common than
nominated subcontractors.
Domestic subcontractors are selected and employed by the main contractor. The
employer usually has to give consent to the main contractor before they can appoint a
domestic subcontractor.
Works contractors are not subcontractors in the traditional sense. They are contractors
employed by a management contractor to carry out part of the main contract works.
Trade contractors are also not subcontractors in the traditional sense. They are
contractors employed by the employer to carry out part of the main contract works.
Labour-only subcontractors only provide labor and do not supply materials.
Design consultants as subcontractors are design consultants who are subcontracted by
the main contractor to carry out design work.
Procurement and tendering overview
Procurement involves deciding the strategy for how the subcontract works are to be
obtained.
Tendering is the bidding process phase of the procurement strategy, in which potential
subcontractors (tenderers) submit offers (tenders) to carry out the subcontract works.
The tenderer's price for the subcontract works is an important component of the tender,
but other aspects that may not have been fixed in the ITT (e.g. the programme for the
subcontract works) may also be important.
Tendering can be a sophisticated process; a ‘one size fits all’ approach may not be
appropriate.
The procurement strategy may state that different tendering procedures should be
adopted for different subcontract works.
A tender bond is designed to act as security by reimbursing the main contractor for
losses incurred if a tenderer does not complete, or abuses, the tender process.
key features of a subcontract
Subcontract agreement: This sets out the key terms of the contract, such as the parties
involved, the scope of work, the payment terms, and the dispute resolution process.
Subcontract conditions: These set out the detailed rules governing the relationship
between the main contractor and the subcontractor.
Particulars: These are specific details about the subcontract works that are not included
in the subcontract agreement or conditions.
Scope of subcontract works: This is the work that the subcontractor is required to do.
Technical documents: These are the drawings and specifications that show or describe
the requirements for the subcontract works.
Attendances: These are facilities and services provided by the main contractor to the
subcontractor.
Security: This is provided by the subcontractor to the main contractor to protect against
the risk of non-performance.
Collateral warranties and third-party rights: These are mechanisms that allow third
parties to enforce the terms of the subcontract.
Special requirements: These are additional terms that are imposed by the main
contractor on the subcontractor.
Providers of standard forms of subcontract
JCT: A UK-based organization that publishes many forms of contract, including subcontracts.
New Engineering Contract (NEC): A UK-based organization that publishes two key standard forms of
subcontract.
Civil Engineering Contractor's Association (CECA)/Association for Consultancy and Engineering (ACE): A
UK-based organization that publishes subcontracts for use with its Infrastructure Conditions of Contract
(ICC).
Association of Consultant Architects (ACA): A UK-based organization that publishes a subcontract for use
with its main contract.
FIDIC: An international federation of associations of consulting engineers that publishes two standard
forms of subcontract.
Explicitly dealing with issues that often arise in relation to subcontract works
Using lessons learned from the adoption of the standard form and judicial guidance
There are two main reasons why the main contractor would want to amend the standard form:
To reflect relevant project-specific amendments included in the main contract.
There are five main considerations to bear in mind when amending a standard form of
subcontract:
The amendments should not lead to discrepancies or ambiguities in the subcontract.
The amendments should accurately reflect the commercial intention of the parties to the subcontract.
The amendments should be drafted in the same style as the standard form (e.g. terminology and tense).
The amendments should be properly incorporated into the subcontract, generally through an enabling
article or clause.
Bespoke/in-house forms of subcontract
Bespoke/in-house subcontracts are contracts that are tailored to the specific needs of the parties
involved. They are often used by main contractors, who may have their own bespoke form of
subcontract that they want to use.
The main contractor should determine their subcontract package philosophy at the beginning of the
procurement process. This philosophy should consider the use of in-house specialists, existing supply
chain arrangements, and strategic and transactional subcontract packages.
In-house specialists: The main contractor may choose to use their own in-house specialists to complete
certain subcontract packages. This can be a good option if the main contractor has the skills and
experience necessary to complete the work, or if they want to maintain control over the work.
Existing supply chain arrangements: The main contractor may also choose to use subcontractors that
they have worked with in the past. This can be a good option if the main contractor is confident in the
subcontractor's ability to complete the work, or if they want to avoid the time and cost of tendering.
Strategic subcontract packages: The main contractor should identify any subcontract packages that are
particularly significant to the project. These packages may be high-value, critical to the project schedule,
or require specialized skills. The main contractor may choose to keep these packages in-house or award
them to a single subcontractor who can guarantee timely completion.
Transactional subcontract packages: The main contractor should also identify subcontract packages that
are not as significant as strategic packages. These packages may be lower-value, not critical to the
project schedule, or there may be many subcontractors available to complete the work. The main
contractor may choose to tender these packages to multiple subcontractors to get the best price.