Nominated Subcontractors – Clause 4.5 of FIDIC 1999 vs 2017

Let’s take a deep and practical dive into Clause 4.5 – Nominated Subcontractors from the FIDIC Yellow Book, with a spotlight on the 2017 edition (and a nod to the 1999 version for perspective). This isn’t just about dry legal theory—we’re going to break down what this clause means on real projects, how it evolved, where it causes friction, and how smart teams navigate it. Whether you’re a contracts manager, a project engineer, or just FIDIC-curious, this section is here to make Clause 4.5 clear, useful, and maybe even a little engaging.

🔍 Introductory Context

Clause 4.5 governs the Employer’s authority to nominate Subcontractors to be engaged by the Contractor for certain portions of the Works. Unlike ordinary Subcontractors chosen by the Contractor at their discretion under Clause 4.4, these are third parties imposed or recommended by the Employer—usually due to specialized expertise, proprietary technology, regulatory requirements, or cost considerations. Clause 4.5 ensures this nomination process includes safeguards to maintain commercial fairness and protect the Contractor from undue liability or impractical obligations. The clause also attempts to balance the Employer’s control with the Contractor’s need for risk management.

🕰️ Historical Context: From 1999 to 2017

Let’s rewind to the 1999 Yellow Book. Clause 4.5 at that time was a bit of a minimalist. It essentially allowed the Engineer to instruct the Contractor to employ a nominated Subcontractor—simple enough on paper. The wording read: “Unless otherwise stated in the Contract, the Engineer may instruct the Contractor to employ a nominated Subcontractor… the Contractor shall not be under any obligation to employ a nominated Subcontractor against whom he makes reasonable objection.” And that was more or less it.

This old-school version was embedded within Clause 13 [Variations], which meant the nomination was treated as a variation to the Works. While this approach was convenient for drafting, it lacked procedural teeth. There were no clear steps for objection, no guidance on payment flows, and no mention of what happens if the Contractor doesn’t pay the nominated party. The result? A breeding ground for disputes, misinterpretations, and unbalanced risk—especially in projects involving high-value, high-risk Subcontractors.

Fast forward to the 2017 edition. FIDIC realized the industry needed more guardrails and granular clarity. So, they gave Clause 4.5 a serious upgrade, transforming it from a single-paragraph add-on into a three-part procedural framework:

• 4.5.1 – Objection to Nomination

Clause 4.5.1 provides a structured and time-bound mechanism for the Contractor to formally object to the nomination of a Subcontractor. According to the clause:

“The Contractor shall not be under any obligation to employ a nominated Subcontractor against whom he makes a reasonable objection by Notice to the Engineer within 14 days after receiving the Engineer’s instruction.”

This means that once the Engineer issues an instruction to employ a nominated Subcontractor—whether named in the Employer’s Requirements or under Clause 13.4—the Contractor has a clear 14-day window to issue a written Notice of objection.

The Notice must include “supporting particulars,” which refers to documented and justified reasons for the objection. Acceptable grounds include:

• Lack of technical competence or qualifications;
• Insufficient financial resources or solvency concerns;
• The subcontract terms not containing clauses that:
  • Indemnify the Contractor against errors, omissions, or defaults by the nominated Subcontractor;
  • Require the Subcontractor to assume equivalent contractual responsibilities as the Contractor bears under the main contract.

Importantly, Clause 4.5.1 also includes a key conditional override:

“If, however, the Employer indemnifies the Contractor against and from the consequences of the nominated Subcontractor’s default or negligence… then the Contractor shall not be entitled to object on these grounds.”

This effectively limits the Contractor’s ability to reject the nomination solely on the basis of indemnity gaps—provided the Employer steps in and assumes those risks formally.

This structured objection process ensures that the Contractor is not forced into unfavorable subcontracts while also protecting the Employer’s prerogative to nominate specialized providers when necessary. It strikes a balance between risk management and contractual flexibility.

• 4.5.2 – Payments to Nominated Subcontractors

Clause 4.5.2 clears up a common point of confusion from earlier versions: who pays the nominated Subcontractor, and how is that payment tracked under the Contract? Here’s what the clause says:

“Unless otherwise stated in the Contract, the amounts payable to a nominated Subcontractor shall be included in the Contract Price in accordance with Sub-Clause 13.4(b) [Provisional Sums].” (Clause 4.5.2)

In practice, this means:

• The Contractor is responsible for making the actual payments to the nominated Subcontractor. These aren’t paid by the Employer directly—unless a separate situation arises under Clause 4.5.3.
• The amounts payable are included in the Contract Price via the provisional sums mechanism described in Clause 13.4(b). This means the Contractor won’t be out-of-pocket for properly executed and certified works carried out by the nominated Subcontractor.
• The Contractor benefits from cost neutrality, as the nominated Subcontractor’s prices are passed through into the Contract Price and certified by the Engineer.

However, the Contractor must be diligent in ensuring that:

• The scope of the nominated Subcontractor’s work is clearly defined;
• The pricing and deliverables are properly documented;
• Any changes to the nominated Subcontractor’s scope are processed via Clause 13.4 (Variations).

Additionally, these payments are subject to certification by the Engineer under Clause 14.6.1 (Issue of Interim Payment Certificates). This ensures oversight, transparency, and adherence to the agreed-upon terms.

Ultimately, Clause 4.5.2 ensures financial accountability and smooth cost recovery for the Contractor, while safeguarding the Employer’s control over critical components of the Works that require specialist input.

• 4.5.3 – Evidence of Payments

Clause 4.5.3 is often underrated, yet it plays a pivotal role in maintaining the integrity of the payment process for nominated Subcontractors. The clause provides a powerful tool for ensuring timely compensation, especially in cases where the Contractor may fail to meet its payment obligations.

“If the Contractor fails to submit such evidence or fails to justify non-payment, the Employer may (at its sole discretion) pay the nominated Subcontractor directly… and shall be entitled to deduct the same from the Contract Price or recover the same from the Contractor.” (Clause 4.5.3)

Here’s how this works in practice:

• Engineer’s Oversight: The Engineer may request the Contractor to furnish evidence that payments previously certified for the nominated Subcontractor have actually been made. This could include receipts, payment confirmations, or other acceptable documentation.
• Contractor’s Obligation: The Contractor must respond by either:
  • Providing documentary evidence of payment; or
  • Giving a legitimate and documented explanation for non-payment, such as unresolved quality issues, delays in deliverables, or breaches of contract by the Subcontractor.
• Employer’s Right to Intervene: If the Contractor fails to comply with this obligation, the Employer is empowered to:
  • Make a direct payment to the nominated Subcontractor;
  • Deduct the equivalent amount from the Contractor’s next Interim Payment Certificate under Clause 14.6.1, or
  • Recover the amount from the Contractor through other means.

This clause is not just a legal fallback—it serves as a strategic project safeguard. It ensures Subcontractors are kept financially engaged and prevents disruption to critical work components due to payment disputes. It also underscores the Employer’s commitment to maintaining liquidity and progress on the site, even if conflicts arise within the main contracting chain.

In essence, Clause 4.5.3 functions as a financial safety valve—preserving both trust and momentum across all tiers of project execution.

Together, these additions reflect FIDIC’s broader 2017 philosophy: risk clarity, procedural fairness, and balanced enforcement. They recognized that while nominated Subcontractors are often politically or technically necessary, the process had to be defensible and equitable for all parties. That’s a serious leap from the relatively hands-off 1999 approach.

🧩 Clause Breakdown – 2017 Edition

Main Definition

Clause 4.5 begins by defining a nominated Subcontractor as one named in the Employer’s Requirements or nominated by the Engineer under Clause 13.4 [Provisional Sums].

“The Contractor shall not be under any obligation to employ a nominated Subcontractor against whom he makes a reasonable objection by Notice to the Engineer within 14 days after receiving the Engineer’s instruction.” (Clause 4.5.1)

---

4.5.1 – Objection to Nomination

Key provisions:

• Contractor has 14 days to issue a Notice of objection with “supporting particulars”.
• Valid objections include:
  • Lack of resources, qualifications, or financial soundness;
  • Subcontract does not contain:
    • Indemnity for Contractor;
    • Equivalent obligations as Contractor under the main contract.

“If, however, the Employer indemnifies the Contractor against and from the consequences of the nominated Subcontractor’s default or negligence… then the Contractor shall not be entitled to object on these grounds.” (Clause 4.5.1)

---

4.5.2 – Payments to Nominated Subcontractors

• Contractor is responsible for payment;
• Payments included in the Contract Price, typically via Clause 13.4(b);
• Certified by the Engineer in accordance with the IPC process.

“Unless otherwise stated in the Contract, the amounts payable to a nominated Subcontractor shall be included in the Contract Price in accordance with Sub-Clause 13.4(b) [Provisional Sums].” (Clause 4.5.2)

---

4.5.3 – Evidence of Payments

• Engineer may request evidence of payment;
• If the Contractor fails and cannot justify withholding, the Employer may pay directly;
• The amount paid is deducted from the next IPC.

“If the Contractor fails to submit such evidence or fails to justify non-payment, the Employer may (at its sole discretion) pay the nominated Subcontractor directly… and shall be entitled to deduct the same from the Contract Price or recover the same from the Contractor.” (Clause 4.5.3)

🔗 Interacting Clauses and Cross-References

• Clause 4.4 – Subcontractors: This clause outlines the general terms under which the Contractor may engage Subcontractors. Unlike Clause 4.5, where the Employer plays an active role, Clause 4.4 gives the Contractor autonomy in selection. However, the Contractor remains fully responsible for the acts and defaults of all Subcontractors. This distinction is critical because, under Clause 4.5, the Employer may bear partial risk (via indemnity) if the nominated Subcontractor is imposed against Contractor’s objection.
• Clause 13.4 – Provisional Sums: Provides the financial mechanism for incorporating nominated Subcontractor costs into the Contract Price. Sub-Clause 13.4(b) specifically mentions that amounts payable to a nominated Subcontractor (unless otherwise agreed) are drawn from provisional sums. This interlink is foundational—Clause 4.5 cannot operate effectively unless supported by Clause 13.4 allocations and appropriate contract data entries.
• Clause 14.6.1 – Issue of Interim Payment Certificates: Governs how and when the Engineer certifies payments. Under Sub-Clause 4.5.3, if the Employer pays a nominated Subcontractor directly, the Engineer must deduct that amount from the next IPC. Hence, Clause 14.6.1 becomes the enforcement point for recovering direct payments or penalizing Contractor non-compliance with subcontract payment obligations.
• Clause 3.7 – Agreement or Determination: If there is a dispute over whether an objection to a nominated Subcontractor is reasonable (under 4.5.1), Clause 3.7 is triggered. The Engineer must first consult with both Parties to seek agreement. Failing agreement, the Engineer must make a reasoned determination. This clause gives structure to potential disagreements arising under 4.5.
• Clauses 20 and 21 – Claims, Disputes, and Arbitration: Clause 20 permits the Contractor to submit a formal claim if it believes that being forced to use a nominated Subcontractor has led to time or cost impacts. Clause 21 provides the final recourse if dispute escalation fails—disputes over indemnity sufficiency, nomination validity, or Engineer decisions can ultimately be referred to the Dispute Avoidance/Adjudication Board (DAAB) or arbitration.

Process Flowcharts concerning [Clause 4.5 Nominated Subcontractors]

This flowchart provides a step-by-step visual representation of the process a contractor might follow when proposing a nominated subcontractor under a FIDIC contract. It emphasizes the importance of obtaining approval from the Employer, ensuring compliance with FIDIC terms, and adjusting plans if necessary.

Sample Letters Illustrating Communications tied to [Clause 4.5 Nominated Subcontractors]

📄 1. Notice of Objection to Nomination

(Clause 4.5.1)

Subject: Notice of Objection to Nominated Subcontractor
Date: [Insert Date]
To: The Engineer
Project: [Project Name / Contract Number]

Dear [Engineer’s Name],

Pursuant to Sub-Clause 4.5.1 of the Conditions of Contract, we hereby submit our formal objection to the nomination of [Subcontractor Name], as instructed in your letter dated [Insert Date of Instruction].

Our objection is based on the following grounds:

1. Lack of Financial Capacity: According to our due diligence, the proposed Subcontractor has been subject to recent credit rating downgrades and is facing outstanding legal claims.
2. Insufficient Technical Resources: The Subcontractor lacks sufficient qualified personnel for the specialized nature of the works.
3. Contractual Terms: The proposed subcontract does not contain adequate indemnification clauses or equivalent obligations as required under the main Contract.

Attached are the supporting documents and financial due diligence reports referenced above.

We respectfully request that the nomination be reconsidered or that the Employer provide a written indemnity pursuant to Clause 4.5.1.

Yours faithfully,
[Authorized Signatory]
[Contractor’s Name]

---

📄 2. Request for Evidence of Payment

(Engineer to Contractor – Clause 4.5.3)

Subject: Request for Evidence of Payment to Nominated Subcontractor
Date: [Insert Date]
To: [Contractor’s Name]

Dear [Contractor’s Representative],

In accordance with Sub-Clause 4.5.3 of the Contract, please provide documentary evidence confirming payment of the certified amounts to the nominated Subcontractor, [Subcontractor Name], for work executed under IPC No. [Insert IPC Number].

This evidence should be submitted within [Insert Number] days of this letter. Failure to do so, or failure to justify non-payment, may result in direct payment by the Employer and deduction from subsequent Interim Payment Certificates, as allowed under the Contract.

Kind regards,
[Engineer’s Name]
[Company Name]

---

📄 3. Employer’s Notice of Direct Payment

(Employer to Contractor – Clause 4.5.3)

Subject: Notice of Direct Payment to Nominated Subcontractor
Date: [Insert Date]
To: [Contractor’s Name]

Dear [Contractor’s Representative],

We refer to the Engineer’s request dated [Insert Date] for evidence of payment to [Subcontractor Name] and your response (or lack thereof).

As you have not provided sufficient evidence or justification for non-payment, and in accordance with Sub-Clause 4.5.3, the Employer has determined to make direct payment to the nominated Subcontractor.

The amount of [Insert Amount] will be deducted from your upcoming IPC or otherwise recovered as permitted under the Contract.

Sincerely,
[Employer’s Representative Name]
[Employer’s Organization]

Checklists for Facilitating and Supervising [Clause 4.5 Nominated Subcontractors]

Checklist for Nominated Subcontractors (Clause 4.5)

No.	Task/Activity	Responsible Party	Remarks
1.	Review the nomination of the Subcontractor by the Employer.	Contractor	Ensure the nominated Subcontractor meets the project’s requirements.
2.	Raise any objections to the nomination, if necessary.	Contractor	Objections can be based on financial stability, expertise, past performance, etc.
3.	Review and finalize the subcontract agreement with the nominated Subcontractor.	Contractor & Subcontractor	Ensure the terms align with the main contract and protect the Contractor’s interests.
4.	Monitor the performance of the nominated Subcontractor.	Contractor	Regularly review the quality of work, adherence to timelines, and compliance with safety standards.
5.	Ensure timely payments to the nominated Subcontractor.	Contractor	Avoid disputes and maintain a good working relationship.
6.	Handle any disputes or issues with the nominated Subcontractor.	Contractor & Engineer	Resolve issues amicably and in line with the contract terms.
7.	Review and approve any design or specifications provided by the nominated Subcontractor.	Engineer	Ensure they meet the project’s standards and requirements.
8.	Ensure proper communication and coordination between the main Contractor and the nominated Subcontractor.	Contractor	Facilitate smooth project execution.
9.	Document all interactions, instructions, and decisions related to the nominated Subcontractor.	Contractor & Engineer	Maintain a clear record for future reference.
10.	Conduct a final review and sign-off once the nominated Subcontractor completes their scope of work.	Contractor & Engineer	Ensure all deliverables are met and the work is of satisfactory quality.

This checklist provides a structured approach to managing Nominated Subcontractors within the FIDIC framework. It ensures that all key activities are tracked, and responsibilities are clearly defined.

💡 For a deeper dive into the legal and procedural aspects of Employer direct payments, check out our companion article: Can Employers Pay Subcontractors Directly Under FIDIC Contracts? A Detailed Exploration.