Critical Analysis for Surveyor - Essay Example

For a aluminium windows nominated sub-contract (NSC), during a tendering process, the client request to change NSC to domestic sub-contract (DSC) Introduction While the writer of this critical analysis as a quantity surveyor was employed with the agency working for the employer, the main contractor was asked during the tendering process to substitute the nominated sub-contract by a domestic sub contract for aluminium windows-part of the contract. This formed 1.75 % of the total contract value. . The nominated sub-contractor appointment originally preferred by the client to ensure control over the main contractor is now not being resorted to in the industry for certain reasons discussed below. Although it formed part of only 1.75 % of the contract, the main contractor has to weigh different options before accepting the substitution arrangement. Below is a small account of what nominated sub-contract is and why employers increasingly prefer domestic subcontract to nominated sub-contract. . Of late the preference to nominated sub-contractors has been on the decline because of the main contractor’s reduced liability. In JCT 98 form of contract, clause 25 provides for an extension of time owing to delay on the part of the sub-contractor. The architect is required to substitute the existing defaulting nominated sub-contractor by a new nominated sub-contractor. Main contractor is not liable for the failure of the design supplied by the nominated sub-contractor under clause 35. Delay is usually caused by the nominated sub-contractor’s late information. Generally, before appointment of the main contractor, nomination of sub-contractor is necessary to enable the architect to prepare full working drawings and other matters connected to building design. This facilitates cost savings at the tender stage since the specialist would prepare one tender on a standard set of conditions. JCT 80 introduced main documentation for nomination of the subcontractor. NSC/1: JCT Standard Form of Nominated Sub-Contract Tender and Agreement is used to call for tenders from potential nominated sub-contractors. This form actually gives sub-contractor specifications and terms and condition to facilitate submission of his tender and later agree with main contractor as regards programme and attendance details. NSC/2: This form called JCT Standard Form of Employer/Nominated Sub-contractor Agreement detailing the obligations of the Sub-Contractor so as to bind him to work with skill and care while under contract with the main contractor. However, the main contractor and the architect are not parties to this contract used as a warranty to protect client’s interests. On the other hand, the client is liable to pay for the design and materials supplied both before and after commencement of construction works. NSC/3: It is the instruction from the architect for the contractor to enter into sub-contract. NSC/4: This JCT Standard Form of nominated Sub-Contract which should be read along with clause 35 of the main contract form. Nominated sub-contractors whose final selection and approval for supplying and fixing materials or goods is the prerogative of the architect as per the JCT 98 clause 35. As per ICE conditions, they can be “any merchant, tradesmen, specialist or other person firm or company nominated in accordance with the contract to be employed by the contractor for execution of work. Usually a contractor is entitled to object to the nomination of particular sub-contractors as it is against contract law to subject one to enter into contract involuntarily. “In traditional main contract tenders, nominated subcontract works will form the subject of a description of a prime cost sum and some preliminary drawings may be provided. Main contract tenderers, therefore, have little information concerning the nominated subcontract works and yet, increasingly, main contract tenderers are being required to take on liabilities such as design, fitness for purpose and even the risks of performance by the unknown, yet to be nominated, subcontractor. Once a main contractor has accepted the architects nomination proposal he becomes responsible for that subcontractor, just as he would his own domestic subcontractors (excepting an obligation to re- nominate in certain circumstances). Therefore, a fair contract should provide protection for the main contractor and allow him to insist upon certain conditions and requirements when the architect issues his nomination proposal.”(Brian E) Domestic sub-contractor is an arrangement by which the main contractor prefers to sub-let part of his work with the written consent of the architect as per clause 19 of JCT 98. ICE also states that the contractor shall not sublet all the works without the written consent of the employer. Clause 19 of JCT 98 provides for two arrangements for sub-letting of works to sub-contractors. 1) The architect’s approval is necessary for sub-contractor chosen by the main contractor. 2)The contractor has the option to choose from the list of at least three contractors mentioned along with the tender specifications. The latter arrangement is some times used to replace nominated sub-contractors who have already expressed their interest. If there is only single sub-contractor mentioned in the bills, it has the effect of a nominated sub-contractor arrangement but is a bad practice because of the requirement by SMM7 that entails a PC sum for work to be executed by a nominated sub-contractor. For example where a client or consultant wants a particular window system but tries to avoid a formal nomination, JCT form does not allow to choosing of specialist who is to become a domestic sub-contractor. The forms to be used between the contractors and their sub-contractors are DSC/C: Domestic sub-contract conditions for use with JCT 98/2003 forms with or without quantities. Case law Clause 35.21 of JCT 98 just as in ICE 6th and 7th editions stipulates that contractor cannot be held for the defective design of the nominated sub-contactor. In Norta v John Sisk (1977) contractor John Sisk was sought to be held liable for nominated sub-contractor’s defective design even though there was no stipulation of contractor’s liability for the design in the main contract. The claimant had entered into contract for factory construction prior to entering which i.e even before receipt of tenders from the main contractors, the claimant had approved a quotation from Hoesch Export for the design, supply and erection of the superstructure of the factory including roof lights thus making them a nominated sub-contractors for defendant John Sisk, the main contractor. After practical completion of the work by the nominated sub-contractor, the roof started leaking due to the faulty design of the roof lights. There was no reference in the main contract holding John Sisk responsible in the event of faulty design by the nominated sub-contractor. However, the claimant argued that design liability was implied in the main contract. This case relating Irish Supreme Court was decided in favour of the defendant, the main contractor holding that no such liability term could be implied into the main contract. Many non-standard forms of contract hold the main contractor liable for the defective design of the nominated subcontractors. JCT with Contactor’s design form also holds the main contractor responsible for the faulty design of the sub contractor. Even in the absence of express terms for the main contractor’s liability for the nominated sub-contractor’s default, implied liability on the part of the part of the main contractor is attempted to be foisted on him because of his active participation or liaison in the design development process. As such, the employer must obtain a design warranty from the nominated sub-contractor to protect his interests. Most of the standard forms of contract do not hold the main contractor liable for the nominated sub-contractor’s fault or nominated sub-contractor’s supplier’s design. In Equitable Debenture Assets Corporation Ltd v Williams Moss and others (1984), the court held that a term should be implied into the contract for contractor’s responsibility to disclose design errors if known to him. In Victoria University of Manchester v. Hugh Wilson and Others (1984), the issue was the problem of ceramic tiles falling off the exterior face of a building at Manchester University. It was due to poor design and poor workmanship. It was held that under JCT 63 the contractor had the duty, as an implied term to warn of the defects in the design but without an obligation of close scrutiny of the architect’s drawings. A 1988 decision relating to University of Glasgow v. Whitfield and Laing did not approve of the approve of the court’s stand in the above two decisions and observed that the contractor had no duty to warn of the defects. In view of what has been reviewed above, it is quite clear that employer not wanting to take chances asks the contractor to agree to amend the nominated sub-contract as domestic sub-contract at the tendering stage itself. Before seeing the merits and demerits of the domestic sub-contract the writer can think of two options left for the main contractor. 1) Agree to substitution by domestic sub-contract as he will gain more control over the whole contract. Or 2) Withdraw from the tender and demand retender. . Each of these options will be discussed at length to decide on which will be a better option after examining the merits and demerits of domestic subcontract and also examine any changes in JCT 2005 in respect of nominated subcontract and domestic sub-contract. Domestic sub-contract Sub-contractor’s primary obligation is to execute the sub-contract as per the sub-contract documents. Mostly it is in express term. Even otherwise, the obligation is deemed as an implied condition. In London Borough of Merton v.Stanley Hugh Leach (1985), it was held that the main contractor should not hinder or prevent the sub-contractor from carrying out his obligations set out in the sub-contract. The sub-contractor must execute the work with proper care and skill. This duty is deemed to have been breached if the sub-contractor uses patently defective materials even if not sourced by him. He is also not expected to blindly use an incorrect plan supplied by the main contractor as any competent sub-contractor would do in the normal course and this duty also includes duty to warn. Even in cases where the sub-contractors has discussed with the contractor’s engineer and offered alternative solutions but not accepted by the client, sub-contractor should not proceed with the work if it is fraught with dangers. In a typical case, the court of appeal observed that the sub-contractor should have protested vigorously and insisted on his objections for safety reasons and even should not have hesitated to discontinue work until what he required was complied with. A major practical problem o subcontracts is how to make both fit together. Provisions of the main contract cannot be read into the sub-contract unless the terms are expressly incorporated. In Smith and Montgomery v. Johnson Bros Co ltd (1954) in Ontario High Court, the defendant main contractor held the contract to construct a tunnel sewer for the city of Hamilton though Hamilton mountain. The plaintiff sub-contractors who were miners took the sub-contract for tunnelling had their contract stipulating “tunnelling according to the dimensions and specifications as set forth in the contract between the City of Hamilton and Montgomery v. Johnson Bros Co ltd, the min contractor. It was decided by the court the wordings are not apt to incorporate the terms and conditions of the main contract into the sub-contract. Having understood the features of nominated sub-contract and domestic subcontract, the writer put forth two solutions. 1) Acceptance the proposal to insert domestic sub-contract in the place of nominated sub-contract. Pros: It will be always ideal for the main contractor to have the whole contract under his control though it means higher risk and liability and responsibility. The nominated sub-contractor is the employer’s man and hence the main contractor cannot dictate his terms o him. The proposal to replace Aluminium windows by the subcontract would not involve much stake for the main contractor as it is only 1.75 % of the total value. As it has been proposed at the tendering stage itself, it is an opportunity for the main contractor to rework out the costing and demand more for the change proposed. The domestic subcontract for the aluminium windows constituting hardly 2 % of the project cost will be executed only after nearly 75 % of the contract is completed. Hence the new component will be a hindrance for commencement for the commencement of the works by which time the contractor will have sufficient time to prepare designs and hand over the same to the sub-contractor. There will be more funds flow since the main contractor will be settling the subcontractor’s bill. More than anything else, this is n opportunity ensure quality since he will be the employer for the domestic sub-contractor. Further, this enhances the credibility of the min contractor with the employer/client and his readiness to undertake more risk will make the employer to prefer the same contractor for future contracts. Cons Though the nominated subcontract has become the thing of past in the construction contract circles, employer’s involvement and commitment does instil confidence in the main contractor since the risks are shared. The tendency of the employers to hold the main contractors responsible even for their nominated sub-contractor’s default is certainly a disadvantage. Further, the main contractor has to obtain collateral warranty from the nominated subcontractor in order to assume the risk himself should a claim arise in future. ”Hong Kong Housing Authority v Rotegear Corporation Ltd where the Authority claimed that its NSC, Rotegear, had breached a warranty on performance related issues by failing to carry out its electrical works with due diligence. As a result the main contractor terminated its contract with Rotegear and engaged a substitute subcontractor. The Authority claimed against Rotegear damages for the added cost of having these electrical works completed by the substitute subcontractor. Rotegear claimed there was no direct contractual link between itself and the Authority, and denied that its performance lacked due diligence as alleged or at all.Reyes J. found that – despite the absence of a conventional collateral warranty - correspondence between the Authority and Rotegear in the process of Rotegear being selected as a NSC satisfied the standard test of offer and acceptance, and that a contractual relationship existed between the parties. Rotegear in its tender response had, for example, generally offered to execute, complete and maintain the whole of the above-mentioned Sub-contract Works in conformity with the said Main Contract (in so far as it apply to Nominated Sub-contractors). Other similar offers were made and, when the Authority accepted these in writing, Rotegear was duly deemed to be an NSC under the main contract. There was no requirement for an express sentence acknowledging the Authoritys entitlement to sue an NSC directly. If Rotegear failed to comply with the main contractors project timetable and caused delay, this would amount to a breach of Rotegears promise to the Authority and Rotegear could be found liable. Reyes J. duly found ample evidence that Rotegear had indeed caused delay, and that the main contractor had proper reason to terminate the subcontract. It followed that Rotegear would be liable for such additional cost as the Authority reasonably and foreseeably had to expend in order to finish off Rotegears uncompleted work, that is, to mitigate its loss. The damages claimed were assessed almost entirely in the Authoritys favour: HK$8.78 million.” (Minter Ellison) Solution 2) Withdraw from the tender and demand re-tendering based on the new condition of domestic sub-contract. Pros This will give an opportunity for the main contractor to freshly workout the cost for aluminium windows and reserve it for the sub-contractor and add some margin for his own and the total value is likely to go up by at least 0.75 % thus making aluminium windows component as 2.5 % of the total value. This will be attitude of all the competitors in the tender since the originally stipulated nominated sub-contractor provision might have forced them to quote lesser in view of the risk summed by the employer. Cons Re-tendering will probably not be accepted by the employer unless all the competitors act in unison. In all probability, the employer will award the contract second lowest bidder so as to avoid delay in the project execution. Such a move to demand re-tendering may also impact on the future cordial business relationship with the employer. Conclusion Considering the pros and cons of the two solutions proposed above, it appears prudent to accept the proposal of the employer for replacing the nominated sub-contract by domestic sub-contract as it is a blessing in disguise that makes the main contractor gain more grips to the contract execution which would outweigh the additional risks assumed by the main contractor. It is only because of the confidence in the main contractor, the employer perhaps proposes this instead of burdening himself on an important component of work involved. Reflecting on the opportunity of coming across an instance of an almost extinct practice of nominated sub-contract, the writer feels that he has learned some thing about subtle differences of both seemingly similar nature of subcontracts. The solution suggested finally is also a via media to avoid friction between the selected main contractor and the employer which fills the writer with the feeling of job satisfaction. Read More