By Dr Samer Skaik
In the realm of construction project management, nomination procedures play a pivotal role in determining how subcontractors are selected and engaged. These procedures have evolved significantly over time to address various shortcomings and complexities inherent in subcontractor nomination. This blog post explores the intricacies of nomination procedures, the risks associated with them, and strategies for improving their effectiveness.
Understanding Nomination Procedures
Nomination procedures are designed to ensure that specific subcontractors are chosen for certain parts of a project, typically due to their expertise or previous performance. The process generally begins when the Employer, in consultation with the Engineer, identifies subcontract packages that they wish to control. This decision is made well in advance to facilitate the planning and execution of the project. The Engineer plays a crucial role in this process, establishing milestones and preparing tender documents for each nominated subcontractor package.
Once a suitable offer is identified based on cost, quality, and time, the Engineer issues a letter of nomination to the Main Contractor (MC). This letter instructs the MC to enter into a subcontract agreement with the nominated subcontractor (NSC) using the provisional sum allocated in the Bill of Quantities. It is essential for MCs to consider the timing of this nomination, as delays may entitle them to extensions of time, depending on the terms of the contract.
Complexities and Challenges in Nomination Procedures
Nomination procedures, while designed to streamline subcontractor selection, can be fraught with complexity. For instance, under JCT 1998, the procedures are considered to be extremely complex. This complexity arises from the need to balance cost, quality, and time considerations while adhering to contractual timelines. In contrast, FIDIC contracts provide more flexibility but also come with their own set of challenges.
One major issue is the potential for objections to the nomination. MCs have the right to object to a nomination on reasonable grounds, such as poor safety records or financial instability of the NSC. If objections are raised, the Engineer may need to re-nominate another subcontractor, direct the MC to perform the work as a variation, or instruct the MC to find an alternative domestic subcontractor.
Risks and Problems Associated with Nomination
The process of subcontractor nomination is not without its risks. Common issues include objections from MCs, scope conflicts, late nominations, and defaults by NSCs. Defaults can have severe consequences, impacting both MCs and Employers. These defaults may include delays in work commencement or reluctance to remedy defects, which can significantly disrupt the project timeline and increase costs.
Different forms of contracts handle these risks in varying ways. For instance, under some standard forms like JCT 80, the delay risk of NSCs is allocated to the Employer, which could result in additional costs and delays for the MC. Conversely, FIDIC contracts might allocate this risk to the MC, who may face liquidated damages for delays caused by the NSC. This discrepancy highlights the importance of understanding the specific terms of the contract being used.
Recent feedback on the effectiveness of current nomination approaches in the UAE construction industry reveals a significant concern: over 73% of respondents acknowledge that NSCs are causing substantial problems. Among the listed risks, late nomination and NSC failures are rated as the most severe, while scope conflicts are considered the least risky. Interestingly, the ambiguity of contract provisions is rated fourth in severity. This contrasts with literature and a recent study findings that often criticize FIDIC provisions for their inadequacy in addressing liabilities, termination, and re-nomination procedures. The discrepancy suggests that while practical concerns may vary, the theoretical and procedural criticisms of FIDIC’s approach remain pertinent and warrant further examination.
Handling Defaults and Termination
When an NSC defaults, termination might be necessary to mitigate further issues. However, the process of terminating an NSC and re-nominating a replacement can be complex and contentious. In some contracts, such as FIDIC, the terms for termination and re-nomination are not clearly defined, leaving many questions unanswered. For example, it may be unclear whether the Employer’s consent is required for termination, who will be liable for damages resulting from termination, or whether the Employer is obligated to re-nominate.
Improving Nomination Practices
To address the challenges associated with nomination procedures, construction professionals have explored various strategies. One approach is to use named subcontractors, where a list of preferred subcontractors is included in the main tender documents. This method can streamline the nomination process and reduce the risk of conflicts.
Alternatively, direct contracts with specialists can be considered, though this requires effective project management and coordination. Some experts advocate for more detailed nomination provisions in standard contracts to reduce ambiguities and conflicts, although specific recommendations on how to achieve this are often lacking.
In light of the challenges associated with nomination procedures, several measures have been suggested to enhance the effectiveness of the process. Initial findings, particularly from trends observed in the UAE, highlight several approaches that are highly recommended for implementation. According to recent evaluations, improving FIDIC nomination provisions—specifically in terms of procedural clarity and the liabilities of parties—emerges as a crucial measure. Additionally, involving the MC more actively in the nomination process and ensuring compatibility between contract and subcontract conditions are also deemed essential for improvement. These measures collectively received a recommendation average score of 80% in a recent survey, indicating strong support for their adoption. Implementing these measures can lead to more streamlined nomination processes, better risk management, and clearer responsibilities, ultimately enhancing overall project efficiency and reducing conflicts.
Conclusion
Nomination procedures in construction contracts are crucial for ensuring that the right subcontractors are selected for specific project tasks. While these procedures have become more refined over time, they still present various challenges and risks. By understanding these complexities and exploring strategies for improvement, construction professionals can better manage the nomination process and mitigate potential issues, ultimately leading to more successful project outcomes.