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Contents

Section 1 Procurement

Section 2 Tendering

Section 3 Sub-contract Labour

Section 4 Suppliers

Section 5 Contractual Implications                                     

 

Description:  The purpose of this unit is to enable you to analyse the procurement and contractual implications of the main contractor using the different forms of subcontract.

Author:  Gates MacBain Associates


Section 1  Procurement



Aims and Objectives

At the end of this section you should: 
  • Understand the options for procurement and the type of work for which each option is likely to be adopted.


There are a number of ways in which a contractor can be appointed for a project and the systems available to ensure that the work is satisfactory completed: a process that is known as Procurement. These are outlined in the presentation Contract Procurement Methods.  Though to obtain an insight into the process you should select the constructionsite Unit the Procurement Systems which can be reached by clicking on the link below.    



Publications

  • Morledge, R, Smith, A & Kashiwagi, D,(2006) Building Procurement, Oxford: Blackwell (Chapter 7)
  • Cooke, B & Williams, P (2009) Construction planning, programming and control 3rd Edn. Wiley-Blackwell: Oxford (Chapter 3



Constructionsite Units



Self-Assessment Task

  • State the type of procurement method most suitable for a Building Engineering Services contract and justify its selection.




Section 2  Tendering



Aims and Objectives

At the end of this section you should be able to:
  • Describe the forms of tendering used to select a subcontractor.


Once the method of procurement has been determined the client or main contractor will need to appoint a contractor/subcontractor to carry out the work. This contractor will be selected by considering a number of factors though the main consideration is that of price. Consequently the client or main contractor will provide a number of suitable companies with the details (Specification) of what is required and ask them to tender, which will involve them in pricing up all the elements of the work in order for them to submit a price that they would be willing to do the job for. 

The forms of tendering are
  • Open Tendering
  • Selective Tendering
  • Negotiated Tendering
  • Two Stage Tendering
  • Serial Tendering
Details of these can be found in the Procurement System (Selecting a Contractor) linked to below. You should work your way through this unit and complete the tasks to confirm understanding.  

Details of the tendering process can be found in the Cooke and Williams book listed below, while guidance can be found at the Tendering website and at the Tendering for Public Contracts website.  



Websites



Publications

  • Cooke, B & Williams, P (2004) Construction Planning, Programming & Control; Blackwell Publishing: Oxford (Chapter 5)



Constructionsite Units



Self-Assessment Task

  • Describe the forms of tendering used to select a subcontractor.





Section 3  Sub-contract Labour



Aims and Objectives

At the end of this section you should be able to:
  • Describe the types of sub-contractors and how they are selected.


It is very unusual for a contractor to undertake all the work in a contract with their own workforce. Even in minor construction projects the main contractor is likely to require the assistance of a trade or specialist firm.  Work undertaken by firms other than the main contractor are described as sub-contractors, although it is not uncommon to find specialist firms working on site beyond the normal jurisdiction and control of the main contractor, and consequently, not a sub-contractor within the generally understood description. 

Employers may employ these firms directly and as such they are not to be considered as sub-contractors of the main contractor.  Provision is made within the contract so that such firms have access to the site and any facilities. 

The employer may also nominate particular firms for specific work that will be required. This approach is used if the employer wants a greater control over the sub-contractor: Although after nomination they are often treated like one of the main contractors own sub-contractors. 

The architect may also name sub-contractors in the BofQ, who will be acceptable for the execution of some of the measured work.  This procedure avoids the lengthy process of nomination, but still provides a measure of control on the part of the architect. The requirement under JCT is to name at least three firms who would be acceptable by the architect.  This allows for an element of competition and allows the main contractor to select the firm.  The contractor can also add to the list subject to the approval of the architect. 

In addition work can be carried out by sub-contractors who are selected by the main contractor these are referred to as domestic sub-contractors.  


Selection of Sub-contractors 

Sub-contractors should be selected, not only on price, but also: 
  • Business integrity
  • Guarantee of service
  • Quality of workmanship
  • Ability to meet the programmed completion date
  • Financial stability
  • Attendance required with regard to facilities, unloading and handling of materials
  • Ensure a proper understanding of the terms and conditions of the contract.
The Cooke & Williams book below contains a good section on the sub-contractor and its place within Supply Chain Management. While the web link gives a good overview of sub-contracting.  



Websites



Publications

  • Cooke, B & Williams, P (2009) Construction Planning, Programming & Control; Wiley-Blackwell: Oxford (Chapter 6)



Self-Assessment Task

  • Describe the types of sub-contractors and how they are selected.





Section 4  Suppliers



Aims and Objectives

At the end of this section you should be able to:
  • Explain the procedure for obtaining materials for a contract and the implications in the event of the supplier being nominated.


Materials may be described as:
  • Materials
  • Components
  • Goods 
All materials must conform to the specification in the contract and meet the requirements of performance and quality. More details on this can be found in Ashworth’s book Chapter 16. 

The source for obtaining materials may be left to the contractor or it may be nominated by the architect. 

Nominated supplier are usually suppliers of goods not widely available such as some traditional building materials or a particular brand of or something that the architect considers is the most suitable for the particular job. 

If the supplier is not nominated the contractor is not obligated to purchase from one particular supplier or to use any nominated brand. This gives them access to a wide selection of alternatives. This allows the contractor to purchase from local or national suppliers, enabling them to take advantage of the market and obtain the best price.  

It is most important that suppliers are selected to ensure that you are able to produce the work according to programme and price; a guide to selection can be found at the website below. A link is also provided to show how relationships with suppliers can be improved.   



Websites

  • Selecting Suppliers
  • Supplier Relationships



Publications

  • Ashworth, A (2006) Contractual Procedures in the Construction Industry, 5th Edition, Pearson: Harlow (Chapter 16)



Self-Assessment Task

  • Explain the difference in obtaining materials for a contract if the supplier is nominated by the architect to the procedure in no supplier is nominated.



Section 5 Contractual Implications




Aims and Objectives

At the end of this section you should be able to:
  • Discuss the types of contract available and the areas that they deal with.


In any contract there are a number of implications resulting from that contract.  In construction a contract tends to deal with a number of specific aspects such as:
  • contractual conditions,
  • tendering arrangements,
  • main contract implications,
  • forms and agreements,
  • intentions of parties,
  • commencement and completion,
  • control of the works,
  • payments, insurance, determination
How these are dealt with will depend on the type of contract that has been adopted though a good source of information relating to the contractual procedures and their implications can be found in the Ashworth book listed below and you should familiarise yourself with this and the areas that are pertinent.  


Standard forms of Contract 

The building industry has a number of standard forms of contract which are used to simplify the contractual process. The other advantages of using standard forms are: 
  • It saves time and money to use a contract which is available rather than prepare one for each job
  • The contract is fair to all parties
  • People become familiar with the document. 
The most common are the Joint Contracts Tribunal (JCT) though others are available depending on the type of work and the country the work is being carried out. These are prepared by the representatives of professional institutions such as RICS, RIBA.  The main types refer to the type of employer and the form of pricing. Eg
  • Private with Quantities
  • Private with Approximate Quantities
  • Private without Quantities
  • With Contractors Design
  • Local Authorities with Quantities
  • Local Authorities with Approximate Quantities
  • Local Authorities without Quantities
There are also specific contracts such as: 
  • Form of Agreement for Minor Works
  • The intermediate Form of Building Contract - used on less complicated work
  • Prime Cost Contract - used where prior estimating is not practicable, contractor is paid for the cost incurred plus a fixed or percentage fee.
  • The Management Contract - used where the contractor manages the work.
Other contracts are available from the other Institutes i.e. Civil Engineers.  

A guide to the standard forms of contract can be found at the link below.  


New Engineering Contract (NEC)

In addition a contract which is often used for services contracts is the New Engineering Contract (NEC). 

The New Engineering Contract, or NEC Engineering and Construction Contract is a formalized system created by the Institution of Civil Engineers that guides the drafting of documents on civil engineering and construction projects for the purpose of obtaining  tenders, awarding and administering contracts.  As such they legally define the responsibilities and duties of Employers (who commission work) and Contractors (who carry out work) in the Works Information. 

The NEC is an integrated set of contract documents that are designed to provide Clients and their suppliers with project-focused outcomes. It aims to ensure the achievement of Client's objectives for the projects in relation to quality, performance, cost and time.  There are six options for the NEC, theses are:
  • Option A: Priced contract with activity schedule
  • Option B: Priced contract with bill of quantities
  • Option C: Target contract with activity schedule
  • Option D: Target contract with bill of quantities
  • Option E: Cost-reimbursable contract
  • Option F: Management contract
These options offer a framework for tender and contract clauses that differ primarily in regard to the mechanisms by which the contractor is reimbursed and motivated to control costs.The core clauses (of the main option listed above) are used in conjunction with the secondary options and the additional conditions of contract.  

The clauses of these options can be adapted for low risk projects and subcontractors by using:
  • The Engineering and Construction Short Contract
  • The Engineering and Construction Subcontract Contract
More information can be found from the Document ‘What is the NEC’ or from the ‘Questions on NEC’ linked to below.   


Assignment and Subletting   

Assignment is the transferring the interests of one party to another. Neither the employer nor the contractor may assign any part of the contract without the written consent of the other party.   

Subletting occurs where the contractor enters into a subcontract with another party to carryout work whilst still maintaining the existing relationship with the employer in all respects.   


Subcontractors   

The contractor cannot subcontract any part of the work without the written consent of the architect or contract administrator. The employment of the subcontractor is automatically terminated upon the determination of the main contract.   

A subcontractor is effectively treated the same as if they were the main contractor, which would mean that materials or goods of a subcontractor could not be removed from site once they were brought on without written permission.   

Domestic Subcontractors - These are subcontractors the main contractor chooses to employ.     

The contract does not recognise the main contractors own subcontractors, any work carried out by these is taken as if it were carried out by the main contractor.   

Named Subcontractors - The contract document may name a number of persons or firms who can be used by the main contractor to undertake certain work as a subcontractor. This gives the contractor the option of choosing one of them.    

Nominated Subcontractors - this refers to a nominated person or firm who is to carry out certain aspect of the contract.  The main contractor has no responsibility to carry our work that is intended to be carried out by a nominated subcontractor. These are normally nominated by the architect on behalf of the employer. Works that are to be carried out by a nominated subcontractor are referred to in the BoQ as a prime cost sum.     

The Ashworth book shown below deals with the contractual implications for sub-contractor.     


Nominated Suppliers   

A nominated supplier is named by the architect as the source of goods and materials which the contractor is to use. Goods and materials which are to be obtained from a nominated supplier are included in the contract bills as a prime cost sum; the contractor must use that supplier.       


Materials on and off-site   

Unfixed Materials – On site   

Materials and goods which have been delivered to site, placed on or adjacent to work, and are intended for the works, must not be removed from the site unless written consent has been received from the architect.  Once the value of these goods or materials have been included in an interim certificate and paid for by the employer, they become the property of the employer, although this may cause problems if the contractor were to become insolvent if he had not obtained title to the goods.     


Unfixed Materials – Off site   

Materials may, at the discretion of the architect, be valued in an interim certificate even if they have not been brought onto site providing the materials can be uniquely identified, that they are in accordance with the contract and that they are insured. These goods then become the property of the employer. The contractor then can only remove these goods for inclusion in the building. The contractor is responsible for the loss or damage of these goods.    



Websites



Publications

  • Ashworth, A (2006) Contractual Procedures in the Construction Industry, 5th Edition, Pearson: Harlow.



Self-Assessment Task

  • Discuss the types of contract which could be used for Building Engineering work.





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