Subcontracting in construction agreements
(Правовое руководство по составлению строительных контрактов)
The term "subcontracting" as used in this Guide refers to the engagement by the contractor of a third person to perform certain of the contractor's obligations under the works contract. It is desirable for the contract to contain provisions dealing with the permissible scope of subcontracting, the selection of subcontractors and other aspects of subcontracting. It is also desirable for the contract to specify the obligations of the contractor which are to be subject to those provisions (paragraphs 1 to 4). Under many legal systems, no legal relationship exists between the purchaser and the subcontractor. It may be desirable for the works contract to deal with certain consequences which arise from this fact (paragraphs 5 and 6).
In particular cases, the contract might prohibit the contractor from subcontracting the performance of some, or all, of his obligations (paragraphs 8 and 9).
With regard to the selection of subcontractors, the parties might consider two basic approaches: the selection of subcontractors by the contractor alone (paragraph 10), and participation of the purchaser in the selection of subcontractors (paragraphs 11 to 26).
If possible, it is desirable for the parties to agree upon the subcontractors prior to entering into the works contract. The names of the subcontractors may be specified in the contract, in order to avoid disputes as to the choice of subcontractors. Alternatively, the parties might agree upon a list of acceptable potential subcontractors, from which the subcontractor would be selected by the contractor (paragraphs 13 and 14).
If the contract provides for the subcontractors to be selected with the participation of the purchaser after the contract had been entered into (paragraph 15), the contract might entitle the purchaser to raise reasonable objections to a subcontractor proposed by the contractor (paragraphs 16 to 19), or obligate the contractor to engage as a subcontractor a firm nominated by the purchaser, subject to the right of the contractor to object to the firm on specified grounds (paragraphs 20 to 26). The nomination system should be used with caution, and with a full understanding of the procedures involved, as well as of the contractual provisions and their consequences (paragraph 23). In either case, it is advisable for the parties to agree upon an expeditious procedure for dealing with disputes between themselves concerning the engagement of a subcontractor (paragraphs 17 and 18, and 26, respectively).
The parties may wish to provide that the engagement by the contractor of a subcontractor to perform any obligation of the contractor under the works contract does not diminish or eliminate the liability of the contractor for a failure to perform that obligation (paragraph 27). The contract might also require the contractor to indemnify the purchaser against losses resulting from damage caused by the subcontractor to property of the purchaser, or resulting from liabilities incurred by the purchaser towards third persons as a result of acts or omissions of the subcontractor, to the same extent that the contractor would be liable to the purchaser had those losses resulted from an act or omission of the contractor himself. Alternatively, the contract might leave those issues to be resolved by the applicable law (paragraph 28).
In some situations, the purchaser might wish the subcontractor to undertake certain obligations towards him, and might wish to be able to claim directly against the subcontractor for a failure to perform those obligations. The parties may wish to consider providing in the works contract a mechanism to make this possible (paragraphs 29 to 31).
The parties may consider it desirable for the works contract to authorize the purchaser to pay a subcontractor directly and to recover from the contractor the sums paid or otherwise be credited for those payments (paragraphs 32 to 34), and to provide for co-operation and communication between the purchaser and a subcontractor (paragraphs 35 and 36).
It is desirable for the provisions of the works contract and of the subcontract to be compatible (paragraph 37).