The nomination of subcontractors by an employer is a fairly common practice in the construction sector in the UAE and is often dictated by commercial considerations.
Nomination of subcontractors can for example occur in one of the following circumstances:
- The employer has an existing business relationship with a particular subcontractor;
- The employer appoints a subcontractor to carry out certain works prior to appointing the main contractor; or
- The employer requires a very specific type of materials that can only be procured by a particular subcontractor.
The legal repercussions of the nomination are complex and are often not sufficiently understood by the parties when they engage in such practice. Below are some of the legal questions that arise as a result of the nomination:
- What are the legal effects of the discussions between the employer and the subcontractor that precede the nomination? do they create a direct relationship between the subcontractor and the employer and allow the subcontractor a direct recourse against the employer?
- Is the contractor relieved from liability for delays (and defects in the works delivered) which are caused by a nominated subcontractor, on the ground that the contractor did not select the subcontractor?
The position under FIDIC
The general principle under FIDIC Redbook (both 1999 and 2017 editions) is that the contractor shall be responsible for the acts or defaults of any subcontractor, his agents, or employees, as if they were the acts or defaults of the contractor (clause 4.4 in 1999 edition and clause 5.1 in 2017 edition). However, the contractor has an opportunity to object to the nomination based on reasonable grounds (clause 5.2 in both editions).
Clause 5.2 lists some of the circumstances that are considered reasonable grounds for objection. If the employer insists on the appointment, there is a possibility for the contractor to appoint the subcontractor if the employer indemnifies the contractor against the consequences of the appointment. If this indemnification is agreed upon, the contractor may hold the employer liable if the subcontractor causes the contractor to default in his obligations.
The general principle under UAE law is that a contractor may subcontract part of the works but shall remain fully liable towards the employer. Article 890 of UAE Civil Code provides the following:
“(1) A contractor may entrust the performance of the whole or part of the work to another contractor unless he is prevented from doing so by a condition in the contract, or unless the nature of the works requires that he does it in person. (2) The main contractor shall remain liable towards the employer.”
While Article 890 does not differentiate between nominated subcontractors and domestic subcontractors, court precedents indicate that the application of Article 890 to nominated subcontractors is not warranted.
In case 266/2008, the Dubai court of cassation held an employer liable for delays caused by a nominated subcontractor. Whilst this decision does not necessarily create a general principle that Article 890 does not apply to nominated subcontractors, it does reveal some of the complexities that are created by the nomination of subcontractors.
- From an employer’s perspective, the nomination of subcontractors is often mandated by commercial considerations. Employers should nonetheless also consider the legal repercussions of engaging in such practice. Employers should weigh the commercial considerations dictating the nomination against the legal uncertainty that the nomination creates.
- From a contractor’s standpoint, it is essential to include in the contract a right to object to the nomination of subcontractors. The contractor should then perform an investigation on the capabilities of the subcontractor at the time of nomination. If there are doubts about these capabilities, the contractor should submit a notice of objection.
By Rani El Hajjar
Head of Property & Construction
CVML Middle East