There are three universally recognised types of sub-contractors in the construction industry. These are domestic subcontractors, nominated subcontractors and named subcontractors. However, there exists a thin distinguishing line between the named and the nominated sub-contractor. We will be looking at them in more detail in this article.
A developer intending to put up a building signs a contract with a contractor to execute the works on his behalf for payment. This contractor becomes the main contractor. The main contractor may want to outsource this work to a third party who has specific expertise in the construction industry. This third party is the one that is called a subcontractor.
The subcontractors work under the main contractor. They are expected to fit within the main contractor’s work programme. Also, they have the duty of executing quality work as designed and specified by the consultants. Their work is supervised by the main contractor who is liable for any errors.
Since the subcontractors are used as and when required, the subcontracting arrangement helps to reduce the overheads of the main contractor. Also, the main contractor’s liability to retain on-site all the specialists needed for certain works is reduced.
Let’s look in detail at each of the subcontractor types as earlier mentioned.
1. Nominated Subcontractor
This subcontractor is used in the case where the architect or the client wishes to restrict and control certain aspects of the project works.
Also, they may be used in cases where, at the tender stage, parts of the project have not been fully detailed. Therefore, the use of nominated sub-contractors allows the job to go to tender, with the nominated works being dealt with at a later date.
The tender process for selecting a nominated subcontractor is organised and run by the architect who invites suitable sub-contractors to submit a tender.
The architect (with the help of the project quantity surveyor) selects the preferred tender and then instructs the main contractor to enter into a contract with the sub-contractor.
During the nomination, a prime cost sum is included in the bills of quantities at the tender stage. This prime cost sum should be an accurate estimate of the likely cost of works when fully detailed.
A nominated sub-contractor then enters into a formal contract with the main contractor. A payment procedure is agreed upon and stipulated in the contract. The nominated sub-contractor then agrees to give the main contractor a 2.5% discount on all sums due, to cover administration costs (commonly known as subcontractor attendance).
This attendance includes but isn’t limited to the items listed below:
- Unloading, storage and protection of the sub-contractor’s materials
- Provision of accommodation, plant, scaffolding and services required by the sub-contractors
- Disposing of rubbish and packaging generated by the sub-contractor
- Protecting the finished works until the project is complete.
Nevertheless, the main contractor has the liberty of pricing the subcontractor attendance as a lump sum, a percentage addition or included within the profit and overheads allowance.
The Process of Nominating a Subcontractor
- Suitable firms are identified by the architect/contract administrator and they are invited to submit tenders for the subcontract works carried out by strictly defined conditions.
- In the case of subcontracts where there is an element of design, it is advisable to include a collateral warranty, that establishes a direct contract between the nominated sub-contractor and the employer, so that the employer can directly pursue the sub-contractor in case of non-performance or other warranty breaches.
- When submitted, the tenders are examined by the contract administrator and one is selected.
- Instructions are then given to the main contractor to enter into a subcontract with the selected nominated sub-contractor and negotiate the items relating to programming.
- Following the agreement an employer/sub-contractor agreement is put in place.
2. Domestic Subcontractor
This type of subcontractor is employed directly by the main contractor. This can either be a subcontractor whom the main contractor has freely selected or a named subcontractor who had been proposed to the main contractor by the client.
Further, the domestic subcontractor does not have a contract with the client. He works on a private arrangement between himself and the main contractor as his personnel on-site and is coordinated by the main contractor’s site management team.
Domestic sub-contractors have the responsibility to deliver work that complies with the approval of the client and architect. They are paid by the main contractor from the monies received from the client in interim valuations. The terms of payments, and any applicable discounts, are negotiated between the domestic sub-contractor and the main contractor.
Also, the main contractor retains the responsibility of ensuring that domestic sub-contractors comply with all relevant statutory legislation. He is answerable to the architect for the works done and materials supplied by the subcontractor.
The use of domestic sub-contractors allows the main contractor the opportunity to transfer risk to the sub-contractors.
3. Named Subcontractor
The named subcontractor is used where the project owner wants to influence who is hired as the subcontractor in his project without taking up responsibility for their performance. In this case, the responsibility for the performance of this subcontractor, their final selection and appointment are left to the main contractor.
The procedure for Naming a Subcontractor
The project owner (also known as the client) selects a shortlist of three preferred subcontractors. He then asks them for quotations based on a standard specification. When they submit their quotations to him, he passes their names and quotations to the main contractor for final selection and appointment.
The main contractor can either accept or reject to engage these subcontractors. If he decided to engage them, he has the right to choose to either use the quotations obtained from the client as the basis for a tender or to renegotiate the terms with the subcontractors.
It is also worth noting that either the main contractor or the subcontractors can refuse to agree if they are not satisfied with the terms of the negotiated subcontract agreement.
Where the conditions of the contract do not provide for the nomination of a sub-contractor, this type of subcontractor can be used.
Main Features of a Named Subcontractor Agreement
The following are the main features of this type of subcontractor engagement:
- The tender documents (usually bills of quantities) include the names of the potential named sub-contractors. The main contractor has the opportunity to reasonably object to any firm on the list.
- The main contractor leads the tender process for each named sub-contractor package by assembling the tender documents, issuing and receiving tenders, and selecting a named sub-contractor.
- After the appointment the named contractor, for all intents and purposes, is a domestic sub-contractor. The main contractor is only paid the rates in the accepted subcontract tender.
Named subcontractor once selected by the main contractor ceases to be a named contractor and becomes a domestic subcontractor.
We have looked at the nominated subcontractor, domestic subcontractor and named subcontractors as the 3(three) types of subcontractors in the construction industry. The process of selecting these subcontractors is slightly different and that is what distinguishes them.
You can also distinguish them based on the applicable sums in the bills of quantities. Where a nominated one is involved, prime cost sums are used; while a domestic one may use provisional sums in the bills of quantities.
Let me know what other distinguishing features you have noted. Post your replies in the comments section below.