13th Mar, 2022
In the construction industry we have two types of subcontractor appointments, namely “Selected Subcontractor” (herein referred to as SSC) and “Nominated Subcontractor” (herein referred to as NSC), but only one standard JBCC Agreement to cover them both.
The Clause references listed below can be found in the JBCC Nominated and Selected Subcontract Agreement, Edition 6.2 – March 2018 (with the main focus being Clause 14 and Clause 15).
Who prepares the tender documentation and issues appointment, and what role does the Main Contractor have in this?
The Quantity Surveyor (herein referred to as QS) prepares the tender documents and calls for tenders, in the case of a NSC the Main Contractor does not have an impact on these documents, but he does have a say for the SSC tender documents. In both cases, the QS has to consult with the Main Contractor when scrutinising the tenders received, however the Main Contractor does not assist with the appointment of a NSC but may have an input on the SSC.
In both cases the QS is to inform the Main Contractor should any advance payments / deposits be required, where both NSC and SSC will have to provide a security for payment, called an Advance Payment Guarantee.
Clause references: Clause 14.1 and Clause 15.1.
When may a Main Contractor refuse to appoint a Subcontractor?
According to Clause 14.2 and Clause 15.2, the Main Contractor may refuse to appoint a Subcontractor where he has made a reasonable objection; where the Subcontractor refuses to comply with the tender requirements and refuses to enter into the Subcontract Agreement; where the Subcontractor fails, or is unable, to provide a form of security in terms of the Agreement.
If the Main Contractor’s refusal is valid, Clause 14.3 states that in the case of NSC the Principal Agent should nominate another Subcontractor and issue a contract instruction to the Main Contractor to appoint same. According to Clause 15.3 in the case of a SSC, the Principal Agent will consult with the Main Contractor and shall issue a contract instruction to the Main Contractor to appoint another Subcontractor.
What is the Main Contractor’s responsibility should the Subcontractor comply with all the tender requirements?
Clause 14.4 and Clause 15.4 states that the Main Contractor is to appoint the Subcontractor as a Nominated, or a Selected, Subcontractor and forward a signed copy of the signed Agreement to the Principal Agent, and he is to provide, within 15 (fifteen) working days, a guarantee for payment for the amount requested.
The Main Contractor will forward regular claims received from the Subcontractor to the Principal Agent / Professional Consultants and issue each Subcontractor with the payment advice and subcontract recovery statement included in the subcontract payment notification as received from the PA / Professional Consultants. He is to pay the amounts due to the Subcontractor as certified.
How do you approach payments not made by the Main Contractor?
According to Clause 14.5 and Clause 15.5 the Main Contractor needs to provide the Subcontractor with a proof of payment within 5 (five) working days of receiving the payment notice from the Principal Agent (this time frame may be adjusted upon negotiation of the Subcontract Agreement).
Should the Main Contractor fail to provide the proof of payment, the client may instruct the Principal Agent to certify a direct payment to the Subcontractor and recover the same amount from the Main Contractor.
What happens when a Subcontractor is in default?
In the case of NSC, Clause 14.6 states that where the NSC is declared insolvent or is in default of the terms stated in the Subcontract Agreement, the Principal Agent is to instruct the Main Contractor to give notice to the Subcontractor to rectify the default. The NSC will have 5 (five) working days after receiving the notice to rectify such default. Should the NSC fail to rectify this default in the time frame, the Principal Agent may instruct the Main Contractor to terminate the Subcontract Agreement.
Whereas in the case of a SSC, Clause 15.6 states that where the SSC is in default of the terms stated in the Subcontract Agreement, it is merely the Mian Contractor’s decision whether or not to terminate.
What process is followed when terminating a Subcontract Agreement?
Clause 14.7 states that should the Agreement be terminated due to insolvency or default of the NSC, or default of the client, or default of any of the Professional Consultants, any variation in the cost required to complete the subcontract work will be for the account of the client. Should the Main Contractor be in default or become insolvent, any variation in cost to complete the subcontract works shall be for the account of the Main Contractor, and the client may recover any loss or expenses related hereto from the Main Contractor. The Principal Agent should instruct the Main Contractor to appoint another Subcontractor to complete the works.
According to Clause 15.7 in the case of a SSC, should the Subcontract Agreement be terminated due to the client or the Professional Consultants being in default, any cost related to completing the works shall be for the client’s account. Should the default be due to any other reason than the client or his consultants being in default, the cost for completion will be for the Main Contractor’s account. The Principal Agent is to instruct the Main Contractor to appoint another SSC to complete the works.
Who are the parties involved in the Subcontract Agreement?
In both cases, NSC and SSC, there is no privity of contract between the Subcontractor and the client, and the Subcontractor is appointed by the Main Contractor.