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Nominated Subcontractors

4 replies [Last post]
Fri, 2005-05-20 07:26
Jihad Daniel
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If the Owner nominated Companies for Electrical and Mechanical works inside a Building and instruct the Main Contractor to enter into subcontracting agreements with them. If the subcontractors delayed in performing their works (late delivery of materials, late mobilization of their resources, etc.),the Contractor would be responsible for the delays incurred by them? If project could not be handed over on time because of these S/Cs’ delays and if Owner decided to apply liquidated damages,how could the Main Contractor transfer the amount of liquidated damages if the ones of the S/C agreements are less than the one of his Contract with the Engineer/Employer?

Thanks & Regards,
J. Daniel
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Replies

Sat, 2005-05-21 23:40
#1
Jaco Stadler
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Good Morning all

If a owner nominate a subcontractor the main contractor normally ad a "mark up". This mark up should allow in my book for the following as a minumum.

1) A Management Fee.
2) The Risk
3) Profit

I Think to many see this fee as profit only but you must rememeber about the other.

Cheers
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Sat, 2005-05-21 04:18
#2
Jihad Daniel
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Dear Vishwas,

I thank you for your reply. However, I have comments on your suggestions as follows:
1- If you raise the LD to 35% instead of 10% of maximum amount, no S/C will dare to work with the Main Contractor as the maximum amount of LD is usually equal to the retaining amount of work which means that a S/C will be willing to lose his uplift & benefit (in worse case) but not willing to enter a S/C agreement where LD can reach 35%?!
2- As S/C is nominated, that means that he negotiated terms, money, schedule and other conditions with the Engineer. Therefore, the Main Contractor cannot easily overpass these conditions and standardize his own S/C agreement rules?!
3- If we took the example of E/M packages in Building, it will form a max. of 40% of Main Contractor’s BOQ amount (noted S). Hence, the application of 10% of LD from Client will be S x 10/100 = 0.1 x S and if Main Contractor wants to be compensated then the application of 25% of the 40% of S will be sufficient as 25/100 x (40/100 x S)= 0.1 x S

In all cases, Main Contractor had to take also the risk of entering into S/C agreements with these nominated S/Cs or else he should from the beginning decline and object on doing so.

Regards,
J. Daniel
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Sat, 2005-05-21 03:12
#3
Vishwas Bindigana...
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Daniel,

I faced a similar problem in one of our projects. The MEP works were nominated and, therefore, the client/consultant nominated a sub-contractor as per clause 58 (Provisional Sums) and Clause 59 (Nominated Sub-contractors).

In order to minimise the difference in LD imposed by the client/consultant on the Main Contractor and the Main Contractor and Nominated Sub-contractor, the percentage of LD was increased to 35% instead of the normal 10%.

That means, the client/consultant can charge the main contractor a maximum of 10% of his contract price as LD. But, the main contractor can charge a maximum of 35% of the nominated sub-contractors’ contract prices.

As a main contractor, you have the right to impose any percentage of LD while entering into a contract with your sub-contractor as long as the main contract does not have any specific rule or condition for the sub-contractor.

This is one of the ways the main contractor can save his back.
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Fri, 2005-05-20 10:09
#4
Rashid Iqbal
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Joined: 3 May 2005
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It is a tough one.

Daniel, There is a famous Canadian Court Case named as ’Ron Engineering’look into it as it may be of some help.


Regards
Rashid Iqbal
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