JBCC selected subcontractor, nominated subcontractor and direct contractor
24th Oct, 2022
THIS BLOG TO REVIEW THE FOLLOWING:
The procedure to appoint a subcontractor.
Risks and Securities
SELECTED SUBCONTRACT APPOINTMENT PROCEDURE
The Joint Building Contracts Committee – Principal Building Agreement is a construction building agreement that governs the building standards among the client, professionals/consultants, contractor, and subcontractors.
The Selected subcontractor is obliged by the JBCC agreement to sign the Nominated/Subcontractor Agreement, follow the terms of the tender and provide the advanced payment guarantee. Should it be that the subcontractor does not comply with these terms, clause 15.2.1-3 allows the Main contractor to object the appointment of such subcontractor.
It is common practice in the industry that subcontractors request for an upfront payment before they can commence with work. This deposit varies from contractor to contractor. Some stipulate 50%, some can even stretch to 70% deposit for more specialised work.
Clause 15.1.5 of the JBCC states “Principal Agent shall inform the contractor where an advance payment is to be made to the subcontractor for an amount included in the accepted tender and that a guarantee for advance payment shall be provided by the subcontractor for the account stated”. The advanced payment guaranteed to be obtained from a reputable financial institution.
It is high risk for the main contractor to issue a deposit of 50%, especially for work of large scale. Clause 15 of the JBCC PBA is there to protect the main contractor. The main contractor obtains profit and attendances for managing the work of the selected subcontractor.
NOMINATED SUBCONTRACT APPOINTMENT PROCEDURE
Nominated subcontractor is quite like the Selected Subcontractor, the principle of securities and management by main contractor is the same. The difference is that the Principal Agent instructs the contractor which contractor to appoint. The main contractor does not have much input on which subcontractor to be invited to tender. However, the industry norm has shifted from the usage of this system (nominated subcontract). The selected subcontractor is mostly used as it allows for competition and good market rated prices.
DIRECT CONTRACTORS’ APPOINTMENT PROCEDURE
Direct contractor is employed directly by the client. The main contractor does not obtain profit and attendance on the execution of work by the direct contractor and there is no contractual obligation between the two parties as per clause 16.3. The client takes the responsibility for the payment of this contractor as per clause 16.2 of the JBCC.
The direct contractor to also ensure to work within the programme of the project. Should the direct contractor cause any delay on the main contractor’s work, the main contractor has the right to claim for any loss caused by the direct contractor as per clause 16.1.3.
Clause 16.0 of the JBCC does not stipulate any form of securities between the client and the direct contractor. The agreement between the parties is outside of the JBCC agreement. This will therefore pose a risk to the client should the direct contractor not perform accordingly.
As Quantity Surveyors and Principal Agents in a consultancy position, we look after the best interests of the client, and we have a duty of care towards the project. Therefore, we must minimize risk to the client as much as we can. It is therefore advisable that subcontractors are appointed as selected subcontractor, this creates a fair and better contractual agreement among all parties. The responsibilities of all parties are clearly stipulated in the JBCC and the payment terms clearly state that for deposit requested by selected subcontractors an advanced payment guarantee is required.
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