SCE4281

Contract Administration &

Measurement
Lecture 4
Parties to a Construction Contract

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Lecture 4

It is common to have many different

parties involved in a
civil/building/engineering project. The
direction of this lecture is to introduce the
parties and their roles in the course of
construction process.

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Functions, Responsibilities and
Obligations of the Parties
• The Employer/Client
• The Engineer
• The Engineer’s Representative
• The Resident Engineer (RE)
• The Contractor/Main Contractor
• Domestic Sub-Contractor
• Nominated Sub-Contractor (NSC)
• Nominated Supplier (NS)

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The Employer/Client
The Employer is the Client, who pays the design and
construction costs. The Employer is, therefore, the most
important party to the contract, without him there would
be no contract.

– Once the contract has been signed, the Employer and the
Contractor become equal parties to the contract, each with
duties and obligations one to the other, the most important of
which are set out in the form of agreement (Contract).

– From the Contractor’s viewpoint, the principal obligation of

the Employer is to provide the work and, subsequently, to
finance that work.

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The Employer/Client
Employers come from one of two sectors:

• the public sector, whose objective is to maximize the use

of resources for public goods, e.g. Housing Authority to
provide public housing or

• the private sector, whose objective is to maximize the

return on their investment, e.g. private developer.

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The Engineer
The Consultant Engineer is employed by the
Client :-
• to plan and design the project,
• to draw up the contract (generally including the
preparation of the bill of quantities)
• to obtain tenders
• to let and supervise the work,
• to authorize payments
• to issue certificates.

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The Engineer
This is a similar role to that of the Architect in
building project:-

• The Architect has general, periodic supervision of the

work, but the every day site supervision falls on the
Employer‘s Clerk of Works.

• The Employer may appoint a Clerk of Works whose duty

is solely to act as inspector on his behalf but under the
direction of the Architect.

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The Engineer
Engineer As Agent of the Employer
Since the Engineer acts on behalf of the Employer, he is the
agent of the Employer. The Engineer must act honestly and
exercise reasonable skill and care in his capacity as an
Engineer. His rights as the Employer’s agent is as follows:-
• The Engineer shall carry out the duties, and may exercise the
authority, specified in or implied from the contract.
• Where the special approval of the Employer is required before
exercising such authority, he must comply with the requirements set
out in the contract.
• Usually the Engineer has no authority to amend the terms and
conditions of the contract or to relieve the Contractor of any of his
contractual obligations, except as stated in the contract.

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Engineer’s Representative
The Engineer may employ representative to work on site.
The responsibilities of the Engineer’s Representative are
primarily to assist the Engineer that he must monitor and
supervise the construction and completion of the works.

The Engineer’s Representative has no authority to relieve

the Contractor of any of his duties or obligations under the
contract, nor to order any work involving delay or any extra
payment, nor to make any variation in the works.

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Resident Engineer (RE)
On large projects, beside the project engineer, there may be
another engineer which will be based on site as the Resident
Engineer.

The Resident Engineer may be aided by assistant engineers,

depending on the size and complexity of the works.

Additionally, the Resident Engineer will have the services of

inspectors and, possibly, quantity surveyors.

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Resident Engineer (RE)
The Resident Engineer is responsible for the
following:
• the day-to-day site supervision, ensuring that the work is carried out
in accordance with the conditions, drawings and specification.
• issue of site instructions and variation orders,
• checking interim valuations and recommend amounts for payment,
• provisionally agreement of new and additional rates,
• advising the Engineer on progress, delays and claims.
• keeping all records, registers, drawings, charts and correspondence
that are necessary for the successful completion and historical record
of the contract operations.

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The Contractor / Main Contractor
The Contractor is the person or persons, firm or
company to whom the contract has been awarded
by the Employer.

The Contractor’s obligations under the conditions of

contract :-

1. The Contractor undertakes to carry out the work in

accordance with the contract, specifically to construct
and complete the works.

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The Contractor / Main Contractor
The Contractor’s obligations under the conditions of
contract :-

2. The Contractor must take full responsibility for the

adequacy, stability and safety of all site operations and
methods of construction, and provide all labor,
materials, equipment, temporary works and transport;
all necessary to complete the works.

3. The Contractor is responsible for the contract risks that

could reasonably be foreseen by an experienced
Contractor.

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The Contractor / Main Contractor
The Contractor’s obligations under the conditions of
contract :-

4. Provide the necessary indemnities

The main contractor is under an obligation to indemnify,
that is to protect the employer against:-
– Fees and charges legally demanded by the
Government Ordinance
– Claims, costs. damages and expenses arising from the
infringement of patent rights
– Claims arising from injury to persons or property
caused by the works

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The Contractor / Main Contractor
The Contractor’s obligations under the conditions of
contract :-

5. Provide necessary insurance

The main contractor must insure in respect of :

– Damage to the works itself

– Damage to property owned by third parties such as
adjoining properties
– Personal injury to workmen, neighbors or passers-by

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The Contractor / Main Contractor
The Contractor’s obligations under the conditions of
contract :-

6. The Contractor is not permitted to assign (transfer to

another party) either the whole, or any part of the
contract without the written consent of the other party.

7. The Contractor is not allowed to sub-let the whole or any

part of the works without the Employer’s written prior
consent.

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Domestic Sub-Contractors
Domestic sub-contractors are employed to undertake the
general portion of work in a project
– for which the Main Contractor has no such trade provision within
his company for example concreting, steelwork, plastering etc.;
– his (MC) own employed labor are busy elsewhere

• Domestic sub-contractors are regarded as part of the Contractor’s

organization in respect of the construction works.
• The MC is entirely responsible for the work carried out by the
domestic sub-contractors as well as for supervision and payment.
• If the MC has any disputes with his domestic sub-contractors, he does
so at his own risk. The MC is fully responsible for the default of the
domestic sub-contractor and they are seen as one entity by the
Employer.

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Nominated Sub-Contractor (NSC)
• Nowadays, it is unusual for a single contractor to
undertake all the contract works directly with his own
work force. Even in the event of minor works, the
contractor will need others to assist him for other
specialist trades.

• The Employer and/or Engineer, may want to influence the

selection of the specialist sub-contractors, but without
taking on the responsibilities for liabilities, management
and control of the specialist sub-contractors.

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Nominated Sub-Contractor (NSC)
• In order to achieve such arrangement, the Employer will
use the system of nomination.

• In a nomination process, the Employer and the Engineer

will select the appropriate Nominated Sub-Contractors
(NSC) and shall instruct the Main Contractor to enter into
a Sub-contract with the selected NSC.

• It shall be noted that there is no direct contractual

relationship between the Employer and the NSC.

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Nominated Sub-Contractor (NSC)
Nomination of NSC may arise from the following means:
• expenditure of Prime Cost Sums
• instruction from the Engineer (EI) regarding a variation
(usually for extra works to the contract)
• by agreement between the contractor and the engineer
on behalf of the Employer.

It is the Engineer’s job to nominate firms to undertake the

works. The selected firms should, by return, meet the
approval of the contractor. If the contractor has a reasonable
objection to a proposed NSC, he should inform the engineer
in writing as soon as possible (preferably within 7 days.)

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Nominated Sub-Contractor (NSC)
Relationship of a Main Contractor with respect to a
Nominated Sub-Contractor in respect of :-
1. Payment
– Normally the contract will require contractor to submit invoices
(payment application) to the Engineer.
– It is the responsibility of the Main Contractor(MC) to include
invoice of the NSC in their application (provided their invoice is
submitted, and complying to the time frame as set out).
– The Employer’s Quantity Surveyor (QS) shall check, evaluate and
assess the payment application and make recommendation to the
Engineer.
– Engineer shall issue the interim payment certificate to the Main
Contractor and it must also state the amount due to the NSC (if
any) .

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Nominated Sub-Contractor (NSC)
1. Payment (cont’)

– It must be stated also whether those monies are

interim or final payment due.
– Individual NSC shall be notified accordingly.
– Main Contractor shall pay to the NSC within 14 days
upon receipt of payment from Employer.
– Engineer/QS may require the MC to produce
documentary proof of the payment due to the NSC. If
fail to do so, the Employer may make direct payment to
the NSC.

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Nominated Sub-Contractor (NSC)
2. Time

– The MC is not able to grant extension of time (EOT)

without the written consent of the Engineer.

– If any NSC fails to complete the sub-contract within the

period allocated, the MC shall inform the Engineer of
such event. The Engineer shall then certify the period
of delay (if any) and apply liquidated damages (LD)
where the case becomes appropriate.

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Nominated Sub-Contractor (NSC)
3. Disputes

– If disputes arise, NSC shall in the name of the MC

commence the proceedings of Litigation or Arbitration.
He shall not act against Employer/Engineer directly
since the contract is between the MC and the NSC.

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Nominated Sub-Contractor (NSC)
4. Facilities

– The NSC shall be allowed to use the MC’s site facilities

or plant as from time to time, but MC shall not
guarantee existence of such items (eg. tower crane,
hoist, scaffolding).

– In return the Main Contractor is entitled under the

main contract to claim for Attendance as he has
incurred cost in providing for the NSCs.

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Nominated Sub-Contractor (NSC)
5. Indemnity

– NSC shall carry out and complete those works in every

respect to the reasonable satisfaction of the MC and
Engineer in accordance with the sub contract
conditions.

– The NSC shall indemnify MC against claims in respect of

negligence, omission or default as those for which the
MC is liable to indemnify the Employer under the
contract.

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Nominated Suppliers (NS)
Nomination of firms to supply materials may arise in:
– expenditure of Prime Cost Sum( PC sum ) in the contract for the
supply of goods
– Engineer’s Instruction is issued

• The origin of the nomination system is that the Employer or Engineer

may want to choose a particular brand of material, and they want to
ascertain that those materials supplied conform to their
requirements, but at the same time, they do not want to take part in
the management, control of the contract (to a certain extent only)

• The process of NS is similar to the NSCs with the contractual

relationship formed between the MC and the NS.

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Typical Organization structure of
a Large Construction Site

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Typical Organization structure of
a Large Construction Site

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End

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