Clause 4.5 Nominated Subcontractors

Clause 4.5 Nominated Subcontractors: In the context of the FIDIC Yellow Book 1999, a “nominated Subcontractor” refers to a Subcontractor whom the Engineer, under Clause 13 [Variations and Adjustments], instructs the Contractor to employ as a Subcontractor. The Contractor is not obligated to employ a nominated Subcontractor if the Contractor raises a reasonable objection. Such objections should be communicated to the Engineer as soon as possible, accompanied by supporting details.

Examination of Interactions with Other Clauses

• Nominated Subcontractors Generally: Nominated Subcontractors are typically used when the Employer is responsible for the design. This is more detailed in the Red and MDB Books than the other FIDIC Books. An Employer might want a specific part of the Works to be carried out by a specialist company rather than the main Contractor. The reasons could be varied, such as the Employer’s preference for a particular Subcontractor or early involvement in the design based on that subcontract supply.
• Purpose of Nominated Subcontractors: In the English case North West Metropolitan Regional Hospital Board v. T A Bickerton & Son Ltd, the purpose of nominated subcontractors was described as a method to achieve two objectives. The employers want to choose who will do the prime cost work and settle the terms, while avoiding potential issues if they entered into a contract with the chosen entity.
• Definition in FIDIC: The FIDIC forms define a “nominated Subcontractor” as one who is either nominated by Variation under Clause 13 or, in the Red, MDB, and Gold Books, is stated in the Contract as being a nominated Subcontractor.
• Liabilities: Due to the pre-negotiated scope of work, terms, and subcontract price by the Employer, and because Sub-Clause 4.4 provides for the Contractor to be strictly liable for its Subcontractors, Contractors must be aware of the liabilities they might be assuming.
• Employment of Nominated Subcontractors: All the FIDIC Books state that the Contractor is not obligated to employ a nominated Subcontractor against whom the Contractor raises a reasonable objection. This objection should be communicated as soon as practicable, with supporting details.

Key Considerations while Implementing [Clause 4.5 Nominated Subcontractors]

• Clear Definition: Ensure that the nominated subcontractor’s scope of work is clearly defined. Ambiguities can lead to disputes later on.
• Timely Communication: The Contractor should be informed in a timely manner about the nomination. This allows for proper planning and integration of the subcontractor’s work into the main project schedule.
• Contractual Relationships: The Employer should be aware that while they can nominate a subcontractor, the contractual relationship is between the Contractor and the nominated subcontractor. The Employer is not a party to this subcontract.
• Liabilities: The Contractor is liable for the acts, defaults, and neglects of any nominated subcontractor. However, the Contractor can raise objections against a nominated subcontractor, which the Employer must consider.
• Payment Terms: Ensure that payment terms are clearly defined and understood by all parties. This can prevent payment disputes later on.

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.

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Flowcharts showcasing [Clause 4.5 Nominated Subcontractors]’s execution and its associations with other clauses

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

From the “Standard Letters in English” by FIDIC, here are some sample letters related to Nominated Subcontractors:

1. Notice of Withholding Payment to a Nominated Subcontractor
   • Addressed to: The Engineer
   • Content: The letter notifies the Engineer that the Contractor has reasonable cause for withholding payment to a nominated Subcontractor and provides the amount withheld, the reason, and the certificate number. A copy of the letter sent to the nominated Subcontractor is attached.

To: The Engineer
From: [Your Name/Company Name]
Date: [Date]
Subject: Notice of Withholding Payment to a Nominated Subcontractor

Dear [Engineer’s Name],

In accordance with Clause 14 (Contract Price and Payment) of the FIDIC Yellow Book 1999, we wish to inform you that we have reasonable cause to withhold payment to the nominated Subcontractor, [Subcontractor Name]. The amount withheld is [Amount], pertaining to Certificate No. [Certificate Number], for the following reasons: [Specify Reasons].

For your reference, we have attached a copy of the letter sent to the nominated Subcontractor, outlining our decision and the reasons behind it.

We appreciate your understanding and prompt attention to this matter.

Sincerely,
[Your Name/Company Name]

1. Objection to the Nomination of a Nominated Subcontractor
   • Addressed to: The Engineer
   • Content: The letter refers to a specific instruction nominating a Subcontractor and expresses the Contractor’s objection to the nomination based on various possible reasons, such as financial problems, inability to meet the main contract program dates, etc.

To: The Engineer
From: [Your Name/Company Name]
Date: [Date]
Subject: Objection to the Nomination of a Nominated Subcontractor

Dear [Engineer’s Name],

We are writing in reference to your nomination of [Subcontractor Name] for [Work Description]. After careful consideration, we wish to express our objection to this nomination as per Clause 4 (Subcontractors) of the FIDIC Yellow Book 1999.

Our objections are based on the following reasons:

(a) The nominated firm will not enter into a subcontract with the same liabilities, obligations towards the Contractor which are imposed on the Contractor towards the Employer by the main contract.

(b) The nominated firm will not indemnify the Contractor from and against any negligence by the nominated Subcontractor or his workmen and from and against any misuse by him or them of any constructional plant or temporary works provided by the Contractor.

(c) The nominated Subcontractor is believed to have financial problems.

(d) The nominated Subcontractor has been unable to demonstrate that it has the skilled labour, management capabilities for the work involved.

(e) The nominated Subcontractor is unable to meet the main contract programme dates.

• [Reason 1]
• [Reason 2]
• [Additional reasons as necessary]

We kindly request a review of our concerns and a reconsideration of the nomination.

Thank you for your understanding and cooperation.

Sincerely,
[Your Name/Company Name]

1. Certification of Payments to Nominated Subcontractor
   • Addressed to: (Copy to Contractor and Employer)
   • Content: The letter certifies that the Contractor has failed to provide reasonable proof of payment to a nominated Subcontractor and has not provided a satisfactory reason for withholding such payment. The Employer is entitled to pay the Subcontractor directly and deduct the amount from any sums due to the Contractor.

To: [Recipient Name]
Cc: Contractor and Employer
From: [Your Name/Company Name]
Date: [Date]
Subject: Certification of Payments to Nominated Subcontractor

Dear [Recipient Name],

We hereby certify, in line with Clause 14 (Contract Price and Payment) of the FIDIC Yellow Book 1999, that the Contractor has not provided satisfactory evidence of payment, less retentions, to the nominated Subcontractor, [Subcontractor Name], as included in previous certificates. The amount in question is [Amount].

Given the circumstances, the Employer is entitled to make a direct payment to the nominated Subcontractor and deduct the corresponding amount from any sums due to the Contractor.

We appreciate your immediate attention to this matter.

Sincerely,
[Your Name/Company Name]

These letters provide a framework for communication related to Nominated Subcontractors within the FIDIC framework. They can be adapted and customized based on the specific circumstances and requirements of a project.

Checklists for Facilitating and Supervising [Clause 4.5 Nominated Subcontractors]

Checklist for Nominated Subcontractors (Clause 4.5)

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.

Conclusion:

The analysis of Clause 4.5 “Nominated Subcontractors” within the FIDIC framework has been comprehensive, drawing insights from various sources. The clause plays a crucial role in project management, ensuring that subcontractors nominated by the Employer are managed effectively by the Contractor. Proper implementation and management of this clause can lead to smooth project execution, minimizing disputes and ensuring quality work.

Remember, the FIDIC framework provides guidelines, but the specifics of each project and contract can vary. Always consult with legal and industry experts when interpreting and implementing contract clauses.