Feb 28, 2012

Sub-Contractor And Supplier

The principles and Concept

In traditional system of construction works, the whole of the works is given to the contractor (also known as  the main contractor). The strict rule is: the contractor must perform the works under the contract himself. Neither the client nor the contractor may assign his rights, interest or benefits under the contract. However the main contractor may sub-let portions of the works to other party known as sub-contractor. But, before sub-letting, the main contractor must obtain prior written approval or consent from the client of the project. Most standard form contracts   (PWD 203/203A, CIDB 2000 and PAM 1998) make sub-let or sub-contract by the contractor subject to the client’s written consent.

In construction contract, sub-contractors tend often to be specialists who carry out parts of the works, such as piling, roofing, elevator, tiling, etc.

We must always remember that there is no direct legal linkages between sub-contractor and the client of the project. The sub-contractor is under the the obligations of main contractor. The main contractor remains responsible to the client for the whole operation and coordination of the works. Performance by a sub-contractor constitutes performance on behalf of the main contractor. The main contractor remains fully responsible for the works done by the sub-contractor.

Do you know, the same above-mentioned principles is also applies to suppliers.

There are two types of sub-contractors and suppliers—the contractor’s own sub-contractors or suppliers (i.e. those who are appointed by the contractor, subjected to  prior written consent by the client), and sub-contractors and suppliers named by the client and then appointed by the contractor. The former is also known as “domestic sub-contractors” or “domestic suppliers”, and the latter is also known as “nominated sub-contractor” or “nominated suppliers”.

In appointing his own sub-contractor (contractor’s own sub-contractor)(and also known as domestic sub-contractor) the contractor may choose any person he wishes except he has to conform to certain minimum requirements such as competent person or the person registered or licensed under certain relevant laws relating to his works.

Nomination and Selection

The right of selection of nominated sub-contractors or nominated suppliers lies with the client of the project.

The usual procedure for a nominated sub-contract (works or supply) is for the architect or engineer (for PAM or IEM forms of contract, respectively) or Superintending Officer (S.O.)(for PWD 203/203A form of contract) to obtain quotations or tender direct from prospective sub-contactors or suppliers. For this quotations or tender purposes, tender documents including drawings, specifications, bill of quantities/summary of tender, etc. shall be prepared by the architect or engineer or S.O (for and on behalf of the client). Sometime, main contract permits the contractor to tender for some items or works.

The officer (i.e. the architect or engineer or S.O) must ensure that the invitation of tenders or quotations be timely and suit the contractor’s programme of works.

Usually, the main contract gives the contractor a right to object to a nomination which does not contain certain beneficial terms, or nomination is unreasonable (price, quantity, etc.). The terms and conditions of the sub-contract shall be settled before the nomination.

If all matters mentioned above settled, the successful tenderer is then nominated by way of a letter (known as Letter of Nomination of Sub-contractor or Supplier) to the contractor.

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