The main form of subcontracting lies with regard to agreement between parties – Employer Company, main contractor or, in other words, works contractor and Sub-contractor who is assigned specific duties by the works, or management contractor.
It needs to be said, that it is not the responsibility of the main contractor to function as a contractor – his role is just to manage the proceedings of the contract and to name and coordinate functions of sub-contracting companies in the operations of their functions and responsibilities.
The use of judicious sub-contracting in the construction field is a beneficial concept and it is believed that this would play a pre-eminent l role in the future of constructions.
The main aspect that need to be considered in the context of subcontracting is The fact that, over the years, construction has tended to become more technically complex and cost-conscious, besides the fact that it has also become intensely competitive. With growing demands from knowledgeable and cost-sensitive clients, who are in a better position to exercise their discretionary caution in terms of Choice of building contractors, budgetary allocations, quality of materials etc., the construction industry as a whole has take a quantum leap forward both In terms of the use of skills and design.
Therefore, the demands to be met by building companies require that they look both in terms of rendering the best services to customers, and also make forays into new development projects and make serious attempts to try and enhance their profits. This can be achieved through Subcontracting, in terms of shifting of work processes, efforts, and skills in order to Concentrate on just the managerial and organizational aspects of the business.
Duties and responsibilities of sub-contractors
The duties of the sub-contractor are onerous- he has to invite tenders seeking delegation of work to various other sub-contractors and choose suitable sub-contractors to fulfill special obligations under a contract. The sub-contractor also nominates other firms. The main advantages of such nominations are that:
- A judicious selection of firms could be made.
- Performance and not the lowest bidder need not be criteria for selection
- Appropriate liability could be determined and fixed according to the subcontracting procedures and relevant laws and regulations governing it.
- It is at the discretion of the sub-contractor to decide the degree and regularity of interference of the subcontractor in the affairs of contractual service.
- Nomination of subcontracting works often obviates delays and inefficiencies in contracting work.
Various types of sub-contractors
The construction sub-contract is worked out between an authorized official of the owner or employer company, who is termed as the main contractor, retained as the main contractor. This Company is at liberty to retain the services of any other sub-contracting company, or group of sub-contractors who are assigned specialized functions in the construction process, which cannot be performed by one person on his own.
It could require the specialized services of painters, bricklayers, masons, carpenters, tile layers, roofing specialists, etc. The services of these occupational specialists are retained by the main contractors, and they form the Core Sub-contractors group for building construction purposes. It needs to be remembered that in the case of domestic sub-contractors, the contractual relationship is between them and the main contractors and they are responsible to the main contractors for the supply of materials, workmanship, and related activities. Normally, Clients need to interact with the main contractors and not with subcontracts. (Construction Subcontracts).
However, in certain organizations, there are aspects of nominated sub-contractors. The process involves submission of a Panel of names of sub-contractors to the responsible authority of the main contractors, say, architects, civil engineers, or construction officers; this authority is at liberty to select the names of sub-contractors from within this panel to be selected for the constructions and they would be awarded the contract relating to their respective sphere of operations.
The painter would get the painting contract; the tile layer would be in charge of laying tiles, etc. However, the distinctive feature of nominated subcontractors is that they would be interacting with the clients and customers and would be responsible to them since they are providing funds for the building construction works. Orders would be taken from the clients and customers and the nominated sub-contractors need to execute them.
The final approval and selection of sub-contractors may be restricted to persons or institutions that could be allowed to make a certain margin on sub-contracting. In case it is also seen that the role of the nominated subcontractor is to offer a nexus between the client and the sub-contractor. The main contractor just supervises the functions of the sub-contractors and the other contractees, to the work process. For instance, in the building of a house, there are certain types of works that are necessary in terms of laying of initial excavations and piling works, foundations, building the concrete structure, brick laying, cementing and plastering, internal structures, flooring, masonry and carpentry work. It requires for specialists like masons, stone layers, carpentry, plumbing experts etc for doing specialised jobs.
Advantages of subcontracting
Subcontracting serves to reduce fixed costs of business, decrease labour/
Overhead costs and also achieve higher levels of skill management and productivity levels. Construction management could be seen in terms of the fact that scarce resources need to be judiciously applied and for this purpose it is necessary to construction managers need to use their business acumen and experience in order to get most utility of assets by employing the least in terms of materials, manpower and money.
It is seen in the present context that scarcity creates a better bargaining power in that more utility value is attached for it. In the present context of sub contracting, it is practically seen that scare labour availability could be better used through sub-contracting while at the same time also obviating the need for fully adhering to labour regulatory laws that are enforceable. The main aspects of subcontracting or out sourcing could therefore be seen in terms of greater productivity at lower costs which is the mainstay of construction industry throughout the globe.
This fact is seen in the context of construction competition becoming highly competitive, especially global competition, should the business be operating in an international construction arena, which is fraught with risks, challenges and responsibilities.
Moreover, it is also seen that nearly all construction companies may have, more or less, similar competitive advantages, and therefore, under such circumstances, and therefore the modus of use of such factors would be the clinching factor, in as far as edging out competition is concerned. It also needs to be seen that construction companies have certain special characteristics which may not always be present in other industries: Therefore, it is necessary that the subcontractor in turn would have, in turn to subcontract to other specialists in building construction areas like above trades. Therefore, the subcontracting becomes more complex, since all work would have to be done, according to the Building Plan and approval by concerned authorities. Not only has the building to be constructed, according to the requirements of potential owner, but also approval of the Government and public works department
Challenges of sub contracting business
For one thing, the initial investments associated with constructions are very high in terms of funds available for putting into the various projects. Sometimes this may be in terms of millions of Pounds, which need to be made available for construction purposes.
The second factor could be seen in terms of projects having a high gestation period sometimes even such time when a project is fully completed and the keys of the building handed over to its new owner after full completion. The risks are innate and immense both in terms of time of completion and the final cost outlay. Delay are inevitable in construction business, more so because external factors also play a significant part in the final analysis in terms of adherence to regulatory measures, license and permits, periodical inspections and need to observe governmental and building construction norms and practices during construction period. All these are contributory factors, since these could influence costs and time elements of construction.
Another factor could be seen in terms of the fact that performance bonds are an integral part of any modern construction business, in order to alleviate future complications and non-performance by contractors. Bonds are the guarantee of performance by the contractor, secured normally from banks or insurance companies, which fructifies in the event of non-performance or work truancy on the part of the contractor or his agent.
The bond safeguards the financial status of the employer in the event of non performance, should it arise. This aspect is even more pronounced in the event of default which protects and safeguards the employer’s interests in the wake of the unfinished work having to be done by some other 3rd party. This would construe additional costs or damages or penalties. There are normally three parties involved in bonding contracts. The guarantor, contractor and the employer. Undertakes to pay damages to a second party (the Employer) arising from breach of contract by a third party (the Contractor). (Performance Bonds in construction: Information for contractor and sub Contractors: Bonds in context: P1)
This aspect is important in sub contracting business because it has legal implications and also adjudges the capacity of the sub-contractor to provide quality performance within specified time. Time factor is important in construction contracts because delays cause more budgetary stresses and added costs, in terms of labour, penalties for non performance on time and other added cost burdens.
Therefore, it could be seen that when considering the global aspects of sub contracting within the construction industry, it could be said that an influential and privileged community of builders could be seen who could endure the rigours and stress associated with high performance contracts with comparative ease and effort, within stipulated time and delivery systems.
In the present context, it could be seen that subcontracting in construction offers an entire gamut of facilities, a contract within a contract so to speak. As a matter of fact, with the wide use of computer assets, which has widely replaced conventional systems, the construction business has become more professionalised , state-of-the art besides commitments to delivery schedules. With the advent of computer and internet technology, projects are build in the systems and only need to be transformed into reality, sometimes even within a matter of weeks.
Thus what could normally take months to establish has been reduced to weeks, thanks to technological innovations and greater mobility and interconnectivity between systems. It is believed that in the time to come, the entire awe and admiration associated with giant structures of steel and concrete would be a thing of the past, and would be a routine feature even in smaller economies in the world construction industry.
The main contextual advantage of subcontracting within contracting is that there are shared responsibilities and commitments, which give rise to better organisational and
Task setting facilities, besides facilitating economies in costs, time and levels of activities. This gives rise to a wider project range and better usage of scare resources which underpin project construction business management.
Risks and challenges of construction business:
Construction business is very risky business for the simple reason that the co-ordination of a lot of functions is aspects need to be constantly harnessed, co-ordinated, and monitored.
Delays in completion of constructions
One of the most significant impacts of construction is that delay factor that could create havoc in construction management in terms of financial and reputation losses.
It would be of two types – deliberate and non-deliberate. Often the main contractor’s actions and directives create delays about which they are themselves aware, but sub contractors have no other recourse but to oblige, and they have to suffer material losses despite no fault of theirs, the delay occurring due to supervening factors outside the jurisdictional control of the sub-contractors, or for that matter the main contractors.
For instance, there is delay in getting necessary approval and permit from Government authorities, the work may sometimes have to be held till such permits are received or provisional arrangements made so that work completion does not suffer.
It is seen that subcontracting involves an array of duties and responsibilities to the main contractors and also, in the case of nominated sub contractors, to the customers who employ them. It is necessary to note that in a subcontractor work, there is expressed and implied laws, which need to be honoured.
In the case of implied warranty of sufficiency for the intended purpose, it could be seen that, in the case of Eastern Steel Construction Inc. v. City of Salem, (2001), the contractor successfully sued the design professional for breach of implied warranty of the actual plans and requirements. The contractor believed that the design professional had not maintained due ordinary care, skill and diligence that was necessary for pursuing this work. (Cushman, 2004).
This decision has been anteceded by the case of Hewett Kier Constructions Inc. v. Lemuer Ramos and Assoc. Inc. 2000 when a general contractor sued an architect for defects, omissions and lack of specificity in drawings and designs of the plans.
The Court opined that there existed a special nexus between the architect and the contractor in terms of the business contract and this could not be waived under any circumstances. Moreover, it is also seen that the contractor had relied on the expertise of the architect but this did not materialise in this context. (Cushman, 2004, P. 9).
Thus it may be said that, to a large extend, the Courts would not only look at the technical aspects that surround the construction environment, and the conduct of the parties but would also consider common law and if necessary law of Tort etc, in determining the scope of liability and what needs to be done to rectify the situation.
The expressed clauses are those that are found in the contract document itself, in terms of work processes and meeting commitments, supply terms, etc. The implied terms could mean in terms of safety of materials in the possession of sub-contractors, co-operation among the different sub contractors, duty of disclosure and maintenance of co-operation and trust in subcontractor work. The fact that certain clauses are implied does not, in any way, undermine or devalue their importance since a lot of decided cases in subcontracting could lead to disputes and litigation, among the concerned parties which, in certain cases, may even lead to dissolution of the contract. Implied clauses in subcontractor ship are important, because it underpins the performance of the ultimate contract, in which even subcontracting business is relevant. (Smith, Curie and Thomas, (nd)).
An owner employee has the responsibility of allowing contractors to enter premise and arrange for work of subcontractors under the main contracts. Similarly, subcontractors have the duty of ensuring that workers of other sub contractors are not stopped form working in sites, etc. Similarly a prime contractor cannot obstruct activities, carried out by other contractors. Thus, it is seen that subcontracting also involves a lot of trust, co-operation and mutual understanding between parties. (Smith, Curie and Thomas, (nd)).
It is seen that the assessment of liquidated damages for delayed delivery, or Non-completion of contract is a major issue, in that it would need to provide an impartial judgment on whom liability would accrue. Under such circumstances, the deciding factor would definitely be the contract which therefore needs to provide correct, clear cut, comprehensive and contextual provisions regarding specific roles, rights, obligations and commitments of the various parties in the construction plans. When the risks, responsibilities and compliances are specifically delineated, it becomes difficult to escape liability at a later date.
The various players- employers, promoters, main contractors, architects and engineers, sub contractors and clients all play well defined roles and therefore have to act according to their designated functions. It is often possible that the main contractor would need to be responsible for certain functions performed by the sub contractors assigned by him, as would the main contractor to the owner-employer for work performance.
Subject to the contractual bindings, the responsibility of performance lies with the main contractor and not with sub contractor, except in evidence of gross negligence and dereliction of duty, on the part of the sub contractor, despite necessary guidance and material provided by contractor, or competent authority. It is seen that, by and large, the category in which the contractor belongs would determine his liability under law- whether nominated, domestic or named sub contractor. As their functions suggest, the degree of liability would depend upon scope and level of authority and responsibility offered.
However, if sub contracting involves designing, then, the ultimate risks and responsibilities associated with it would need to be reexamined and fixed.
In the Norta Wallpapers (Ireland) Ltd-v-John Sisk and Sons (Dublin) Ltd (1977) case, a nominated subcontractor was retained to provide and install superstructure of a wallpaper factory. The design proved improper and the court determined that in the absence of a categorical term in the main contract, the main contractor did not accept liability for the design. It was unreasonable to suggest that the primary contractor be held responsible for work he had not accepted or performed, especially when professional experts in the field of designed were retained and paid for performing such activities. (Atkinson, 1999).
Further, it is also seen that aspects of health and security are gaining major attention in the construction industry in recent times, thanks to a spate in onsite accidents. This has prompted the Government to embark upon the promulgation of several edicts that seek to introduce risk averseness, and introduce a sense of accident caution in the workplace. This is necessary, because in UK context, it is seen that a majority of people are working in the construction industry, and therefore, an overhauling of the present health, accident and security aspects would not be out of place. Strictures are now in place, which restrict use of subcontracting within subcontracting, to just one level in the case of manual work, and to three levels for specialized functions.
Further, it has been edited that a Register of sub-contractors needs to be maintained in the work place showing the number of current sub contractors and should be open to scrutiny by inspectors, trade unions and other officials.
The fundamental idea behind control is to regulate the activities of subcontracting into desired channels, prevent avoidable and controllable accidents and incidents and also provide safe and healthy accident free environment for work in sites and environments relating to real estate business
Work Schedule needs to be maintained
It needs to be said in this regard that when the work schedule is running behind schedule it becomes necessary to take strong and drastic action to bring the production back to normal schedule. This could also be seen in terms of doubling the efforts, where the risk of accidents also doubles if planning organising and co-ordaining work is haphazard and not well organised. The work has to move along smoothly and efficiently according to plans. This is critical since, in the construction Industry, there are multifarious tasks and activities to be performed, which may not be directly connected with each other. Moreover, the coordination aspect is very critical, since a large number of subcontracting issues are also involved, which may, or may not be interdependent with one another.
It has been seen that the architects are major persons involved in stage- managing a successful project, since project management involves a great deal of planning, organising and executing, in order to obviate the need for the project falling flat or running into obstacles during its operations. It could also be seen in terms of the fact that architects should be considered as the best people who could coordinate and offer leadership for projects, in that they could solve project misconceptions, and could also modify drawings and make the project up to date, and modified, before the actual building construction has started, so that losses and delays do not occur.
The sub contracting is done in order that a part of the main contractor’s functions are now performed by subcontractor under contract. In the event of lack of written contract, it is seen that where work is performed and payments received , the conduct of the parties would enforce liability as was seen in the case of G Percy Trentham -v- Archital Luxfer Ltd (1992). (Atkinson).
However, it is seen that the main aspects that bind a subcontracting contract would be the permission that is needed to be taken. The contractor needs to take the consent of employer before making subcontracting deals, and again the subcontractor needs to take the permission of the contractor before making further contracts with other subcontractors. If the contractor does sub-contract part of the Works without consent, then this may amount to a repudiatory breach of contract. The employer will then be discharged from further obligation under the contract including payment, since the contractor’s substituted performance will amount to non-performance.
British Waggon Co. -v- Lea (1880)
In the case of British Waggon Co. -v- Lea (1880) it was held that where a person agrees with another to do work or render services and it can be assumed that the person has been appointed for the exercise of professional skills and capability, then it can be assumed that the contract terminates if the party is unwilling to perform the contract even though his replacement may be competent enough to carry out the assigned task. (Atkinson).
It is generally seen that a subcontractor who is in violation of any of the terms of the sub-contract is liable to the main contractor since the clauses in the subcontract could have terms consistent with that in main contract. Thus damages paid by the contractor to the employer could be construed to be damages that could subsequently be recovered from the sub-contractor. However, it is sometimes seen that the doctrine of privity is enforced in the sense that. Since sub contractors are not a party to the original contract, they could be held liable to the employer for breach of main contract clauses. Since persons who are not parties to the original agreement cannot reasonably be held liable under them, and thus employers cannot, in certain circumstances, claim damages from sub-contractors. (Murdoch, 265).
John Laing Construction Ltd -v- County and General Properties Ltd (1982)
The general governing tenet is that the contractor is responsible for performance of his obligations and cannot excuse his infringement by adducing to having sub-contracted that part of his performance. Webster J in John Laing Construction Ltd -v- County and General Properties Ltd (1982) stated that it is the main contractor who contracts with the sub-contractor and it is he, not the employer, who, as between himself and the employer, takes the risk of non-compliance by the sub-contractor with his obligations. (Atkinson).
However, it is possible that Sub contractors could incur direct liability to employers under tort of negligence in the event of defective workmanship. However it is seen that UK Courts have dealt differently with cases involving negligence in construction. In the case of Norwich CC v. Harvey, while constructing an extension for swimming pool, the sub contractors set off a fire which caused extensive damages, both to the contract works and the existing structure The Court held that since the subcontractors were not party the main contract they could not be held liable for it. However, in the event of invocation of JCT 98 insurance clauses were to be applied, then the subcontractor in this case would have been liable for loss of the existing structure. (Baker).
Sub contractors’ rights under law
The sub-contractor could have the following rights under law:
- Rights for payments which could be cleared according to the terms of contract or the understanding between the parties. However, it may often happen that there may be a pay when paid clause that limits payments to subcontractors based on the payments received by the main contractors from employers. However, the party may not ask the sub-contractor to undertake work without specific authority, or consent of the main contractor or the employers. If this is done, it is possible that the labour and amounts spend by subcontractors may not be recovered.
- Right for materials It is seen that the materials actually belong to the main contractors which are being used by the sub contractor; however in certain cases, the subcontractor may exercise retention of title, in which case the materials are retained till the payments are released. In a case, the subcontractor was delivered slate for roof making. However, although the main contractor was paid, it was liquidated before the subcontractor could be settled. Since the contract related not just for supply but also for fix, the Sale of Goods Act could not be invoked and therefore, the subcontractor could hold materials till final payment received. However, if only Supply was intended, then sale of Goods Act could be invoked.
- The title retention also differs from case to case and needs to be considered in terms of Clause 19.4 of JCT 98
It is seen that construction business is a very complex business with a great deal of ramifications and implications, sometimes even outside the purview of contract or sub contract management. It involves legal processes, conformity to rules and strictures in designing and construction, project management, financial administration , cost control, supervision over men, material resources and management skills of high order. A lot of diverse independent factors need to combine and work harmoniously for the final structure to take material form and concrete structure.
It has been deliberated that subcontracting within construction is an ongoing and growth oriented process that would definitely contribute immensely to the cause of construction, both large and small, in the United Kingdoms in the years to come. Despite being challenged in terms of accountability, performance and client satisfaction, it is seen that subcontracting offers benefits that wipe off defects, in terms of cost and allocation benefits, and offer efficiency and strategic effectiveness in a highly competitively charged milieu. It could also be seen in terms of rendering stronger supply chain management systems that improves the overall management systems. Thus it is seen that the effectiveness of larger construction companies are
Inextricably linked with smaller firms, who may or may not deliver. Thus, supply chain management systems need to make robust and demanding to cater to future challenges positively and with alacrity.
Atkinson, Daniel. Effect on contractor of subcontracting. Atkinson Law. 1999. Web.
Atkinson, Daniel. Subcontracting. Atkinson Law. 1999. Web.
Atkinson, Daniel. Subcontracting. Atkinson Law. 1999. Web.
Baker., and McKenzie. Employer’s Insurance its effect on contractor’s liability for negligence. Construction Group. 2002. Web.
Construction subcontract. Clockdocs: UK Legal Documents and Information. 2008. Web.
Cushman, Robert Frank. Construction Law Handbook. Aspen. 2004. Web.
Murdoch, John, and Huges, William. Construction Contracts: Law and management. Construction Contracts. 2008. Web.
Smith, Hancock., Curie, Kellecher. Jr., and Thomas, J. (n.d). Construction law: A practice guide for construction professional. Common Sense Construction Law. AmazonOnlineReader. V. 3. P. 3. Web.