Project Management Procedure for Managing Provisional Sum and Nominated Subcontractors

1. Purpose

The purpose of this contract commercial management procedure is to establish the correct administration for the process of Provisional Sums and Nominated Subcontractors for the project.

2. Scope

This procedure is applicable for all projects.

3. References

Subcontractor and Major Supplier Management

Legal and Contractual Issues

Engineering Deliverables and Document Submission Schedule

Provisional Sums and Nominated Subcontractor Schedule

Nominated Subcontractor Selection Report

4. Definitions and Abbreviations

Nominated Subcontractor (NSC): All  specialists, merchants, tradesmen and  others  executing any work or supplying any goods, materials, Plant or services for which Provisional Sums are included in the Contract, who may have been or be nominated or selected or approved by the Employer or the Engineer (Fidic Clause 59.1)

Provisional Sum: A sum included in the Contract for the execution of any part of the Works or for the supply of goods, materials, Plant or services, or for contingencies on the instructions of the Engineer (Fidic Clause 58.1)

5. Responsibilities

The following personnel have responsibilities mentioned in this procedure:

–  Project Director (PD)

–  Project Commercial Manager (PCM)

– Construction Manager (CM)

– Corporate Commercial Director (CCD)

6. Subcontractor Nomination Procedure

6.1 Overview

a) In many respects NSC’s are the same as Domestic Subcontractors in relation to most aspects of  the administration of their subcontract agreements, refer to Subcontractor and Major Supplier Management procedure. The major difference is the Employer’s involvement and the issues outlined below.

b) It is preferable where possible that the main contractor undertake the NSC procurement process (call tenders, settle and recommend)

c) Where the Employer nominates a subcontractor for the contractor to appoint, the main contractor has the right under the Main Contract to object to the NSC (Fidic Clause 59.2) for the stated reasons in the Main Contract.

d) Once the main contractor accepts the NSC, then the Contractor is responsible for them in the same way as for Domestic Subcontractors.

6.2 Objection to Subcontractor Nomination (Fidic Clause 59.2)

a) The main contractor is under no obligation to enter into a subcontractor agreement with any Nominated Subcontractor provided the contractor can raise an objection consistent with the stated reasons in the Main Contract.

b) The PD/PCM shall:

i. Review all NSC’s put forward by the Employer/Engineer and prepare Nominated Subcontractor Selection Report providing details of either recommendation or objection. The report requires the following details:

– Past Cooperation with a contractor

– Past performance on similar projects

– Financial Stability

– Resource Availability

ii. Notify the Engineer in writing (via recorded delivery) with specific details of any objection to a NSC appointment (Fidic Clause 52).

This should be done at the earliest possible opportunity so the Engineer has time to correctly review the objection and to present a viable alternative.

iii. If the objection is upheld, issue (via recorded delivery) a further notice to the Engineer requesting an alternative subcontractor.  If  appropriate  the  contractor should  put forward an alternative subcontractor but must resist any ‘caveats’ from the Engineer making the contractor responsible for the selections put forward by the contractor.

iv. If the objection is rejected by the Engineer/Employer;

– Seek an indemnity from the Employer relieving the Contractor from any negligence of the NSC or its employees; and;

– Immediately advise the GM/DCM/CCD, forward copies of relevant correspondence and seek advice in accordance with Legal and Contractual Issues.

6.3 Design requirements to be expressly stated (Fidic Clause 59.3)

The PD/PCM are to ensure:

i. All NSC Agreements are ‘back to back’ with any design conditions/supplements that are contained in the Main Contract.

ii. Review all NSC Agreements prior to signing to ascertain the extent, if any, of the design responsibilities included within the scope of the subcontract works.

iii. All NSC Agreements provide indemnity to the main contractor from all claims arising from non-performance of the NSC Works including design.

6.4 Payments to Nominated Subcontractors (Fidic Clause 59.4)

CM shall ensure that:

i. The appointment of each NSC is issued under an Engineers Instruction (Fidic Clause 58.2).

ii. The main contractor does not sign NSC Agreements without the receipt of an Engineers Instruction instructing expenditure of the relevant Provisional Sum under the Main Contract.

iii. All payments to NSC’s are executed in accordance with the signed NSC Agreement/Engineers Certificate.

iv. The NSC provides an accurate and fully detailed application for payment to the contractor at the dates shown in the NSC Agreement and the application is sent to the Engineer for information.

v. Any deductions in monies from the NSC applications/account are accurately documented and sent in writing (via recorded delivery) to the NSC before payment is made.

vi. The Engineer is notified of any deductions to NSC payment applications and is given detailed information of same.

vii. A copy of the NSC certified payment, detailing what the contractor has certified for payment is to be sent to the Engineer for information (Fidic Clause 59.5).

viii.   The contractor notifies the NSC that there will be a deduction in the application for payment or a failure to pay the NSC in order to avoid the possibility of the Employer paying the NSC directly and offsetting from any sums due to the contractor (Fidic Clause 59.5).

6.5 General Nominated Subcontractor Management

The PD/PCM are to ensure:

i. That all  NSC  planned  nomination  and  award  dates  are  shown  on  the  Clause  14 Program.

ii. That these  dates  are  incorporated  in  to  Engineering  Deliverables  and  Document Submission Schedule.

iii. That these dates/requirements are incorporated into the Advance Notice of Employer Deliverables required under Clause 6.3.

iv. A formal written notice is issued (via recorded delivery) to the Engineer for any NSC that has not been issued in accordance with the dates shown on the Clause 14 Program.

v. The ‘percentage on cost value’ shown in the Main Contract is applied to all NSC payment applications included in the Contractors Monthly Statement/Application.

vi. The contractor apply for payment of NSC values within the Contractors Monthly Statement/Application and that the NSC’s agreed applications are submitted to the Engineer with the Main Contract percentage applied.

vii. That   Provisional   Sums   and   Nominated   Subcontractor Schedule is maintained and included in the Project Monthly Report.

7. Records

Provisional Sum/NSC Schedule

NSC Selection Report

Engineering Deliverables and Document Submission Schedule