Contract Matters

Claims for Payment

Under standard forms of engineering contract, at the end of every month, the contractor submits interim valuations of work done. This is to be certified by the engineer and paid within 28 days. There is retention pending expiry of the defects liability period.

Not later than three months after the date of the maintenance certificate, a contractor shall submit to the engineer, a statement of final account and supporting documentation showing in detail the value, in accordance with the contract, of the work done.

Within three months of receipt of this final account and information reasonably required for its verification, the engineer shall issue a final certificate stating the amount which in his opinion is finally due under the contract. The maintenance certificate issues at the expiry of the maintenance period which is used 12 months from substantial completion.

Subcontractors

Engineering contracts provide for nominated and domestic subcontractors similar to those in the case of a construction contract. The nominated or specialist subcontractor is selected by the employer. The main contractor is instructed by the employer to engage him as a subcontractor. In contrast, domestic contractors are chosen by the principal contractor and engaged to do less elaborate / more routine work.

Standard forms of contract provide for the nomination of subcontractors by the employer. Collateral warranties are usually given by the special subcontractor to the employer. They may also be required to funding institutions, purchasers and tenants.

Standard engineering contracts provide that the engineer may order the contractor to employ a subcontractor nominated by the engineer in relation to a prime cost item. This is an item designated as such in the bill of quantities. Such nominees are nominated subcontractors.

The contractor is not obliged to enter into a form of contract with a nominated subcontractor against which he takes a reasonable objection. If the nominated subcontractor will not enter a full indemnity form of contract with the main contractor, the engineer may instruct the main contractor to proceed nonetheless with the subcontractor on the basis that the employer will indemnify the main contractor in relation to any shortcomings with the subcontractor’s indemnity.

Unless otherwise provided, the contractor is responsible for work executed or goods or materials supplied by the nominated subcontractor employed by him, as if he had executed the works, goods and materials or services. If the nominated subcontractor causes the main contractor to be in breach of contract with the employer, the employer may only enforce an award or judgment it obtains against the main contractor, as far as the main contractor may recover the cost from the defaulting subcontractor. The employer is to reimburse the contractor for any cost incurred in pursuing the subcontractor on the employer’s behalf.

Issues with Subcontracts I

If the contract of a nominated subcontractor is terminated with the consent of the employer on the instruction of the engineer or in circumstances where the contractor is entitled to do so under the subcontract, the contractor is entitled to recover from the employer, the additional cost incurred after forfeiture by way of progressing the subcontract works or by way of engaging the services of an alternative nominated subcontractor. A contractor is entitled to an extension of time in relation to any delay consequent on forfeiture.

The employer is entitled to recover sums which are to be included in the contract price, payable to the contractor together with the costs of delay against the main contractor. He may do so to the extent that these sums are recoverable by the main contractor against the defaulting subcontractor.

The issue sometimes arises as to whether the main contractor is responsible for design elements undertaken by specialist subcontractors. Where the project is designed by the employer, the main contractor is responsible for design not included in the employer’s design which is left to the subcontractor to implement or because the design would fall within the expertise of a special or subcontractor as opposed to the expertise of the employer’s architecture or engineer.

When a contractor is required by the terms of the main contract to give any return, account or notice to the engineer or the employer, the subcontractor shall in relation to the subcontract work give a similar return notice, account or other information in writing to enable the contractor to comply with the terms of the main contract.

He shall do so in sufficient time to enable the contractor to comply with such terms punctually. The subcontractor shall be excused any noncompliance for so long as he neither knew nor ought to have known of the contractor’s need of any such return, account or information.

Issues with Subcontracts I

The contractor is to take reasonable steps to secure from the employer such contractual benefits, if any, as may be claimed in accordance with the main contract on account of any adverse physical conditions, artificial obstructions or other circumstances that may affect the execution of the subcontract works.

If any dispute arises in connection with the main contract, and the contractor is of the opinion that such dispute touches and concerns the subcontract works, then provided the arbitrator has not already been agreed or appointed, the contractor may by notice in writing to the subcontractor require that such dispute under the subcontract shall be dealt with jointly with the dispute under the main contract. The subcontractor shall be bound in like manner as the contractor by any decision of the engineer or award of the arbitrator.

Under standard engineering contracts, the amounts payable to nominated subcontractors are to be separately identified in certificates issued under the main contract. Sums payable to domestic subcontractors are not specifically identified.

The employer is entitled to make direct payment to nominated subcontractors if the contractor fails to make the payments due. There is no equivalent entitlement in relation to domestic subcontractors.

Role of Engineer

The engineer is appointed by the employer. He is typically involved in the design of the project and the preparation of the design documents. He will usually prepare the tender conditions in conjunction with other advisers.

The engineer is to look after his client’s interest and to monitor the progress of the work and make various decisions etc. as are required under the documents. He has a separate role in judging the entitlements of the parties under the contract. This includes certification of sums payable, interim sums payable, sums due to the contractor in relation to claims, the extensions of time that the contractor might be entitled to, the extent to which the employer may be entitled to liquidated damages.

Decisions of the engineer are binding unless challenged under the dispute resolution mechanism. The engineer must be given the opportunity of making a formal decision before the dispute is referred to conciliation or arbitration. The arbitrator has the power to open up review and revise any decision, opinion, instruction, direction, certificate or valuation of the engineer.

The engineer is to act honestly, independently, fairly, and impartially in relation to matters between the employer and contractor. He is not an arbitrator but has a duty to act fairly in exercising his professional judgment. He is not a judicial or quasi-judicial functionary in this regard.

There is an implied warranty by the employer that the engineer will act fairly and impartially when acting as a certifier. This does not import a warranty that the engineer will not make errors and mistakes. A certificate may be invalidated if the engineer does not act in good faith or otherwise misuses his power.

The certifier may be liable to a contractor for economic loss due to failure in his duty of care. It is not clear if this broad approach would still hold. Later cases have held that an engineer does not owe a duty of care and lacks sufficient proximity to be liable in negligence to the contractor in certifying.