Lets get rid of them

The use of nominated and selected sub contractors has become so munch a part of contracting that those responsible for setting up contracts seem to accept that this is not only the norm but that it is an essential element of contracting, says Chris Binnington.

“Nothing could be further from the truth,” says Binnington. He also takes a look at the pitfalls associated with the use of nominated and selected sub-contractors and advocates their immediate removal from the contracting environment.

“Industry burdens itself with a classification of sub contractors, the use of which is detrimental to employers and to main contractors.

“The fact that this class of sub-contractor has existed in the UK and South Africa for many decades should not preclude those parties responsible for the formulation of contracts, from moving towards a better system of contracting by the elimination of all nominated and selected sub-contracts.

Nominating a specialist sub contractor to carry out certain specific work normally requires that the terms of the sub contract be approved, in advance of the enquiry being let, by the main contractor.

The obligation thereafter to appoint a nominated sub contractor is an obligation created by the provisions of the principal contract between employer and main contractor.

Usually the provisions of the principal agreement will contain certain clauses that will provide relief for the main contractor in the event of default by the nominated sub-contractor. Under these usual terms, delay or default by the nominated sub contractor will give rise to an entitlement to an extension of time for the main contractor.

What benefit is this to the employer? “The answer must be absolutely none,” says Binnington.

“Complications are introduced by provisions in the principal agreement which entitle a nominated sub contractor to apply for direct payment where the main contractor is in default of payment to its nominated sub contractor.

“Once again the question must be posed, of what benefit is this to the employer and again the answer generally is absolutely none. Apart from the fact that the main contractor may have very valid reasons for failing to make payment to its sub-contractor, the main contractor should always be seen as the responsible party for the successful conclusion of the contract. Anything that detracts from this responsibility has to be detrimental to the employer.

“Paradoxically the building industry has recognised this situation and in South Africa has created the hybrid known as ‘the selected sub contractor’.

“This grouping is intended to provide all the perceived benefits of a nominated sub contractor without the limitations. Unfortunately, in my view, the perceptions of benefit are in fact, non existent and the system is simply maintained by professional teams because it is easier to do that which they are accustomed to, rather than moving to a more satisfactory form of contractual relationship.

“The only advantage that is ever suggested when the question is posed: ‘Why have nominated or selected sub-contractors?’ is that it allows the employer (read professional team) to specify certain specialists who are apparently very good at what they do.

“The truth of the matter is that the professional team are avoiding their real responsibilities, that is, ensuring that the employer is properly protected by having a competent set of contract documents which makes single point responsibility the order of the day – the main contractor should be responsible for everything.

“Proper specifications would obviate the necessity to nominate or select by narrowing the numbers of players to those competent few who would otherwise have been nominated or selected, thus avoiding all the downside pitfalls of nomination and selection.

“It is perhaps significant that arguably the most advanced form of contract presently in use, the Engineering and Construction Contract issued under the auspices of the New Engineering Contract suite of documents, has no provision for sub-contracts in the principal document.

“Single point responsibility, with the employer looking to the main contractor to complete the properly defined scope of work, is a key to a successful contract.

“Industry should wake up and totally eliminate nominated and selected sub-contracts. It is regrettable that JBCC has not had the courage or perhaps die awareness to recognise that the elimination of these forms of sub-contract will benefit the industry as a whole.

“Instead, it is mired in a traditional form of contracting with no real benefit.

JBCC has lost a huge opportunity to move into the new millennium with a document worthy of the South African building industry. It is high time that the construction industry, as a whole, moved towards better contracting arrangements and abolished this unnecessary form of sub-contract. Peter Bold of the JBCC responds in the October issue.

Construction World September 1998