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🔎 Note to Readers
This article is written specifically in the context of the FIDIC Yellow Book 2017 (Plant and Design-Build), focusing on how Nominated Subcontractors (NSCs) are procured, contracted, and managed within that framework.
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Red Book 2017 (Construction):
NSC nomination applies under Clause 5.2 when Employer retains design responsibility.
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Silver Book (EPC/Turnkey):
NSCs are rare, as Contractor assumes full design & construction risk.
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Yellow Book (Design-Build):
The primary focus here: detailed process for NSC procurement and management.
🔄 Guidance here can be adapted to other FIDIC contracts, with attention to specific clause references and risk allocation philosophy of each form.
📑 Notice Inviting Tender (NIT) for NSCs Before the Main Tender
FIDIC’s Yellow Book 2017 does not mandate a separate NIT for nominated subcontractors (NSCs) before the main contract tender. However, best practice (and FIDIC’s own guidance) suggests that if the Employer plans to nominate specialist subcontractors, this should happen well in advance of the main tender.
Identify/Select NSC(s):
Employer defines NSC scope & terms before main tender.
Invite NSC Bids:
Engineer prepares NSC tender docs & invites bids in parallel with or prior to main tender.
Fix Scope, Quality & Price:
NSC details (scope, price) are locked in—often as a provisional or prime cost sum.
Incorporate into Main Tender:
NSC nomination is made clear in Employer’s Requirements—main bidders use these assumptions.
⚡ This proactive approach avoids surprises and ensures fairness among bidders.
While FIDIC Yellow Book 2017 doesn’t require an “NIT” by name, it is strongly recommended to invite NSC tenders early, especially for public projects. This aligns with FIDIC’s guidance to make NSC nominations clear at the tender stage.
🤝 Employer-NSC Agreements: Timing and Enforceability
Under the FIDIC nomination system, the Employer aims to select a specialist subcontractor (NSC) without direct privity in the main subcontract. In practice, the Employer (via the Engineer) negotiates and agrees terms with the NSC before or during the main contract tender. However, there’s no binding subcontract at this stage between Employer and NSC—just a deal “package” to be passed on to the future Main Contractor.
Preliminary Agreements (MoU, LoI):
Non-binding or transitional, recording agreed scope/price. Intended to “hold” the NSC for the winning Main Contractor.
Conditional Subcontract:
Legally enforceable, but only becomes active if the Main Contractor is appointed. Then assigned/novated to the Main Contractor.
Novation/Assignment:
Employer steps out after award; NSC contract is transferred, so no direct Employer-NSC link during project.
📜 Key point: By main contract signing, Employer should not be a party to any ongoing NSC contract.
Any MoU or LoI may bind the NSC to hold price for a limited time, but true enforceability only arises when the Main Contractor contracts with the NSC.
NSC Agreement Essentials: Key Components & Bidding Inclusion
Scope of Work: Detailed description of work, supplies, or services to be provided, meeting the Employer’s technical specs.
Price & Payment Terms: Subcontract price (fixed/rates), and method of payment. FIDIC uses Provisional Sums.
Timeframe: All key milestones/required dates must align with the main contract programme.
Terms & Conditions: Include main contract obligations (back-to-back). FIDIC 2017 lets the Main Contractor object if critical protections (indemnities, insurance, etc.) are missing.
Miscellaneous Provisions: Securities (e.g., guarantees), dispute resolution (matching main contract), and assignability clauses.
Back-to-Back Obligations
NSC must mirror main contract duties (quality, defect correction, design liability, etc.) to protect Main Contractor & Employer.
Indemnities & Liabilities
NSC’s failures (negligence, goods misuse) = Main Contractor’s risk. Indemnity & liability clauses are non-negotiable in FIDIC subcontracts.
Assignment Clauses
Subcontract should allow assignment to Employer if Main Contractor’s employment ends. Essential for contract continuity.
Dispute Resolution
The NSC’s dispute process should align with the main contract—often same arbitration or DAB/DAAB mechanism as FIDIC.
📄
Always include **key NSC agreement terms** in the main contract’s bidding documents—this ensures transparency, compliance, and seamless project execution!
How NSC Terms Should Be Reflected in Bidding Documents
Pre-Award or Draft Agreement:
Settle key NSC components before contract award, or have a draft subcontract ready to execute post-award.
Settle key NSC components before contract award, or have a draft subcontract ready to execute post-award.
Include in Bidding Documents:
NSC terms (scope, price, key clauses) should be reflected in the main contract’s bidding documents whenever feasible.
NSC terms (scope, price, key clauses) should be reflected in the main contract’s bidding documents whenever feasible.
Identify NSC & Scope:
When Employer has pre-selected an NSC, bidding docs must name the NSC and clearly outline their scope.
When Employer has pre-selected an NSC, bidding docs must name the NSC and clearly outline their scope.
Include Price/Provisional Sum:
NSC’s price or a provisional sum (e.g., for “Work by NSC X”) is listed in the Bills or Schedule of Prices.
NSC’s price or a provisional sum (e.g., for “Work by NSC X”) is listed in the Bills or Schedule of Prices.
Special Conditions & Clauses:
Bidding documents include special conditions or forms of subcontract—sometimes even a draft agreement.
Bidding documents include special conditions or forms of subcontract—sometimes even a draft agreement.
🔍
Incorporating these details means all bidders price the same NSC arrangement—guaranteeing fairness and transparency, as endorsed by FIDIC guidance.
📑Employer’s Requirements
Clearly identify NSC by name, with scope in Employer’s Requirements for clarity and dispute avoidance.
💰Prime/Provisional Sum
List the NSC’s price or provisional sum in Bills or Schedule, with Main Contractor’s margin predefined.
📝Draft Subcontract
Attach a draft or key terms required for NSC subcontracts—mirroring FIDIC Clause 4.5 requirements.
⚠️Bidders’ Notice
All obligations to the NSC (coordination, site access, etc.) should be spelled out in the main tender.
✅
Summary: If an NSC agreement exists, all essentials (scope, price, key terms) should be embedded in the main contract tender docs for transparency and to prevent later disputes!
Employer’s Role & Privity with NSCs Post-Award
Contractual Matrix (Privity):
Employer
(Party A)
(Party A)
Main Contractor
(Party B)
(Party B)
Nominated Subcontractor
(NSC / Party C)
(NSC / Party C)
❌ No direct contract between Employer & NSC (“No privity”)
Key Points of Employer’s Post-Award Role
Responsibility & Risk
Main Contractor is fully responsible for NSC’s performance —any NSC failure is a Contractor failure in the Employer’s eyes.
Main Contractor is fully responsible for NSC’s performance —any NSC failure is a Contractor failure in the Employer’s eyes.
No Direct Enforcement
Employer cannot instruct or sue NSC directly; must go through Main Contractor (and the Engineer as channel).
Employer cannot instruct or sue NSC directly; must go through Main Contractor (and the Engineer as channel).
Engineer’s Role
Engineer may review or monitor NSC’s work, but instructions flow only through Main Contractor.
Engineer may review or monitor NSC’s work, but instructions flow only through Main Contractor.
Direct Payment Safety Net
Employer can pay NSC directly in case of default, then deduct from Main Contractor. Used rarely and only as a last resort.
Employer can pay NSC directly in case of default, then deduct from Main Contractor. Used rarely and only as a last resort.
Collateral Warranties
Employer may request collateral warranty for direct rights, but this does not reduce Contractor’s liability under main contract.
Employer may request collateral warranty for direct rights, but this does not reduce Contractor’s liability under main contract.
🔒
After contract award, the Employer’s involvement with NSCs is indirect: the Main Contractor manages and carries all risk for NSC’s work, with limited safety nets for Employer protection. No standard tripartite contract—privity remains clear and strict!
Main Contractor’s Subcontract with the NSC: After Award
Nomination or Instruction
Once contract is signed, Main Contractor is instructed or confirms the nominated NSC for defined scope/price.
Once contract is signed, Main Contractor is instructed or confirms the nominated NSC for defined scope/price.
Drafting the Subcontract
Contractor must draft a formal, written subcontract for the NSC, based on agreed bidding terms and any Employer-NSC draft.
Contractor must draft a formal, written subcontract for the NSC, based on agreed bidding terms and any Employer-NSC draft.
Back-to-Back Terms
Subcontract must be “back-to-back” with the main contract—mirroring all obligations, liabilities, and indemnities.
Subcontract must be “back-to-back” with the main contract—mirroring all obligations, liabilities, and indemnities.
FIDIC Clause 4.5
Contractor can object to nomination if the NSC won’t sign or required terms are missing.
Contractor can object to nomination if the NSC won’t sign or required terms are missing.
Execution & Performance
Upon signature, NSC’s work is governed by the new subcontract and forms part of the Contractor’s overall obligations to the Employer.
Upon signature, NSC’s work is governed by the new subcontract and forms part of the Contractor’s overall obligations to the Employer.
📄Formal Subcontract Required
Cannot rely on quotes or MoUs—must execute a written subcontract based on all agreed terms and FIDIC requirements.
🔁Back-to-Back Obligations
NSC’s subcontract must mirror main contract duties—scope, price, timeline, and indemnities all aligned.
⚠️Contractor’s Right to Object
If NSC won’t sign the back-to-back contract, the Contractor can refuse the nomination (per FIDIC 4.5).
✅Timely Execution
Subcontract should be finalized as soon as possible after nomination or instruction.
🖊️
After award, the Main Contractor must execute a new, written subcontract with the NSC—incorporating all agreed terms and mirroring main contract obligations. Only then does the NSC’s work become a formal, enforceable part of the Contractor’s performance.
FIDIC Guidance on NSC Procurement & Contractual Structuring
General Conditions
Clause 4.5 & 13.4
Clause 4.5 & 13.4
FIDIC Guidance Notes
(Official/Commentary)
(Official/Commentary)
FIDIC Subcontract Forms
Industry Best Practice
📜General Conditions
Clause 4.5 (plus 13.4) defines “nominated Subcontractor,” sets out NSC procedures, Contractor’s right to object, and payment through provisional sums.
🗒️Guidance Notes/Recommendations
FIDIC’s commentary recommends naming NSCs in the tender if possible, and outlines how Clause 4.5 supports nomination both before and after award.
📂Subcontract Forms
FIDIC’s published subcontracts (like the Red Book form) are templates for “back-to-back” terms with main contract. Yellow Book projects adapt these for design/specialist work.
⚖️Best Practice
FIDIC does not prescribe NSC procurement steps, but expects fair, transparent selection—especially for public projects.
📌
Summary: FIDIC 2017’s core guidance for NSCs is embedded in the contract clauses and official notes. It ensures nomination is transparent, risk is properly allocated, and back-to-back subcontracts protect all parties—without prescribing a rigid procurement method.
Using a Memorandum of Understanding (MoU) with a Nominated Subcontractor (NSC)
Before Main Contract Award
Employer and NSC may sign an MoU to ‘lock in’ key terms (scope, price, timeline) before a Contractor is selected.
Employer and NSC may sign an MoU to ‘lock in’ key terms (scope, price, timeline) before a Contractor is selected.
Purpose
MoU secures commercial commitment from the NSC, often pending award of the main contract.
MoU secures commercial commitment from the NSC, often pending award of the main contract.
Legal Status
MoUs are generally not legally binding for performance; they mainly show intent, not a final obligation.
MoUs are generally not legally binding for performance; they mainly show intent, not a final obligation.
After Subcontract Signed
Once NSC signs with the Main Contractor, the MoU becomes obsolete. Employer steps out; the real contract governs the NSC’s work.
Once NSC signs with the Main Contractor, the MoU becomes obsolete. Employer steps out; the real contract governs the NSC’s work.
📝MoU
Records NSC’s intent and headline terms during tender. May be partly binding (e.g. exclusivity), but not enforceable for performance once subcontract is signed.
📄Formal Subcontract
NSC signs with Main Contractor after award—this fully replaces MoU, with all legal obligations and risk allocation.
🔄Novation
Employer may sign a binding NSC contract, then novate it to Main Contractor after award. Employer’s direct contract ends.
✅
An MoU helps “set the stage” with an NSC before award, but after the formal subcontract is signed, only the new contract with the Main Contractor matters. The MoU’s job is done!
Timing of NSC Engagement: Bidding Stage vs. Post-Award
🏗️Employer/Engineer
Identifies & negotiates with NSCs during tender prep.
Includes NSC details in bidding documents.
If no NSC is finalized, may list “preferred” specialists or announce intention to nominate post-award.
Provides all bidders with same info for fair competition.
⬇️
🔧Main Contractor / Bidder
Understands and integrates NSC info at bid stage.
May contact NSCs for due diligence if nomination is not fixed.
Engages NSC formally immediately post-award—finalizes agreement, integrates with project, starts work.
All commercial terms with NSC are set by Employer’s nomination; post-award focus is on coordination, not negotiation.
🕒
In FIDIC projects, NSC engagement starts with the Employer during procurement. The Contractor’s real involvement with the NSC begins post-award—when it’s time to formalize the contract and coordinate the works.
Timeline: NSC Engagement & Contractual Flow (FIDIC Model)
1
Employer/Engineer Plans NSC Strategy
Employer (and Engineer) decide if project needs nominated subcontractors.
Best practice: identify & engage NSCs pre-tender.
Best practice: identify & engage NSCs pre-tender.
2
NSC(s) Identified & Approached
Employer/Engineer approaches specialist(s), may issue a tender, negotiate, or sign MoU with NSC.
MoU can ‘lock in’ terms for tender.
MoU can ‘lock in’ terms for tender.
3
NSC Terms Included in Bidding Docs
Employer inserts NSC’s scope, price, and key terms (or provisional sum) into bidding documents.
Bidders all see the same info—no unfair advantage.
Bidders all see the same info—no unfair advantage.
?
IF NSC is Pre-Named in Tender Documents:
All bidders must include the NSC’s details and cost in their bid.
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ELSE (NSC not pre-named—just “preferred” or TBA)
Bidders may do due diligence with known specialists.
Provisional sum likely included in bid.
Provisional sum likely included in bid.
4
Tender Submission & Award
Bidders submit bids. Employer awards to the winning Main Contractor.
?
IF NSC is Named in Main Contract or Nominated Post-Award:
Main Contractor is instructed to finalize a formal subcontract with the NSC.
5
Main Contractor Prepares Subcontract
Contractor drafts & executes “back-to-back” subcontract with the NSC.
Back-to-back terms required.
Back-to-back terms required.
!
IF NSC refuses or required terms missing:
Contractor can object to nomination (FIDIC 4.5), and nomination may fail or be replaced.
6
Subcontract Signed — NSC Now Bound
Once signed, NSC’s work forms part of Contractor’s main contract obligations.
Employer has no direct contractual link—all goes via Main Contractor.
Employer has no direct contractual link—all goes via Main Contractor.
!
IF Main Contractor does not pay NSC or dispute arises:
Engineer/Employer can step in in some cases for payment.
Performance issues: Employer/Engineer instruct Contractor to resolve with NSC.
Performance issues: Employer/Engineer instruct Contractor to resolve with NSC.
7
Project Execution & Completion
NSC delivers work under subcontract; Main Contractor remains fully liable for NSC’s performance to Employer.
Collateral warranty may provide Employer direct recourse if required (but does not reduce Contractor’s liability).
Collateral warranty may provide Employer direct recourse if required (but does not reduce Contractor’s liability).
Key References
FIDIC Yellow Book 2017
Clauses 4.4 (Subcontractors), 4.5 (Nominated Subcontractors) and 13.4 (Provisional Sums) – plus official Guidance Notes.
Skaik (2023)
“Navigating Nomination Procedures in Construction Contracts: Insights and Challenges.”
O’Neill (2020)
“Contractors’ potential avenues for relief following failures by nominated subcontractors.”
Simply Malaysia – Construction Law Resource
“Nominated Subcontractors and Contractor’s Risk under FIDIC (1987 Red Book).”