In our last edition of International Quarterly, we looked at the new FIDIC subcontract, so in the first in our new regular feature – Contract Corner, it seemed appropriate to look at how, in this instance, the FIDIC contracts deal with sub contactors.
What does the clause mean?
The key clause is sub-clause 4.4. Under the Red Book, the basic obligation can be broken down as follows:
- Unless otherwise agreed the contractor cannot subcontract the whole of the Works;
- The contractor remains wholly responsible to the employer for the acts of that subcontractor as if those acts had been carried out by him;
- The prior consent of the engineer is required1 for all subcontractors apart from suppliers and subcontractors named in the contract;
- The contractor must give the engineer 28-days notice of both the intended and actual commencement date of any subcontractor’s work; and
- The subcontract must contain suitable provisions entitling the employer to require the subcontract to be assigned to him in the event of termination.
There are certain di" erences across the FIDIC Rainbow suite. For example, under the Silver Book, the contractor only has to notify the employer of the appointment of a subcontractor giving details of that parties’ experience and when they are to start; whilst only the Red and Pink books contain the assignment provision noted at point (v) above. Under the Gold Book, if the subcontractor is entitled to any relief from risk on broader terms than those speci! ed between contractor and employer, then those additional circumstances shall not serve as an excuse for non-performance by the contractor.
What all version do, however, is to make it clear that the contractor is wholly responsible for the performance of the subcontractors. This obligation extends not only to the subcontractors appointed by the contractor but also to the subcontractors nominated by the employer in accordance with clause 5 of the Red Book2.
It is important that the contractor appreciates how wide the obligations here are. The contractor is responsible for all the acts and defaults of the subcontractors. This is why under sub-cl.2.2 of the FIDIC Subcontract 2011, the subcontractor is to assume the duties and obligations, of the contractor under the main contract which relate to the subcontract Works3 .
There are a number of amendments that are often made to these clauses. Some follow the lead of the Pink Book, in requiring that the contractor shall ensure that the requirements of con! dentiality imposed on the contractor by sub-clause 1.12 apply equally to each subcontractor.
Also, the Pink Book, requires that where practicable, the contractor shall give fair and reasonable opportunity for contractors from the country where the pojrect is sited to be appointed as subcontractors. This is a typical requirement where the funding comes from the World Banks and other similar funding insitutions. And if there is no actual formal contractual clause, such a requirment will often form part of the tender critieria.
As noted above, if the subcontractor is named in the contract or if the subcontractor will merely be supplying materials, then the consent of the engineer is not required. In all other circumstances, the consent of the engineer will be needed. The Pink Book puts forward a practical option suggesting dispensing with prior consent if the value of the proposed sub- contract is very small compared with the overall contract value.
A typical requirement imposed on contractors follows from the requirement that although the contractor cannot subcontract the whole of the project works, he can subcontract a part of them. Often, a percentage limit or restriction will be placed on the contractor’s ability to do this in the tender documentation. This is all part of the trend towards restricting the abilty to subcontract.
Going further than imposing percentage limits, employers will often look to ensure that key equipment or materials are provided by particular subcontractors. Remember there are no nomination provisions in the Silver Book.
Employers often look to adopt similar provisions from the Red Book giving them the right of approval of certain subcontractors into the Yellow and Gold Books. Where the contractor is responsible for the design, if that responsibility is to be subcontracted, an employer may also look for a warranty from the subcontractor in question. Taking this control one step further, employers will often look to the right to approve the actual subcontract itself.
It will be interesting to see whether FIDIC gets round to drafting subcontracts for the Yellow or Silver Book and if so, whether any of these typical amendments find a way into them. Alternatively when FIDIC releases the draft of the new Yellow Book, which is due out later this year, will it decide to make any amendments to the subcontracts clauses.