CLAUSE 4 - Subcontracting

This clause prohibits the sub-contracting of the whole or any part of the Works unless the contract
expressly permits it or specifies the name of a subcontractor or the Engineer gives his consent. The
Contractor does not require consent for labour and the purchase of specified materials. Regardless of any
consent, the Contractor will be fully liable for the defaults of the subcontractor as if they were the defaults
of the Contractor himself.
The Employer may require and pay for the assignment to himself of any guarantee or warranty or other
continuing obligation undertaken by a subcontractor to the Contractor which lasts beyond the Defects
Liability Period.
Sub-clause 4.1 is largely taken from the 3rd Edition but items (b) and (c) are new. Sub-clause 4.2 is
derived from clause 59(6) of the 3rd Edition.

4.1 - Subcontracting
This sub-clause is given considerable importance by the fact that clause 63.1(e) (Default of Contractor)
makes contravention a ground for termination by the Employer. In contrast with the 3rd Edition and ICE
5th, there is no requirement in clause 63.1 that unauthorised sub-letting should be "to the detriment of
good workmanship or in defiance of Engineer's instructions to the contrary" before the Employer may
terminate. Thus, any technical breach of clause 4.1 could be disastrous.
The consent of the Engineer is subject to clause 1.5 (Notices, consents etc) and may not be
unreasonably withheld or delayed. Under clause 2.6 (Engineer to act impartially), the Engineer must
make his decision impartially having regard to all the circumstances.
"Any such consent shall not relieve the Contractor from any liability ...". This provision is intended to make
it plain that the Engineer's agreement to a particular subcontractor will be given without any responsibility
being taken for the subcontractor's competence and ability to perform. It is made plain that subcontractors
will be treated as if they were part of the Contractor's organisation for the purposes of responsibility. No
distinction with regard to responsiblity is made between subcontractors nominated pursuant to clause 59
(Nominated Subcontractors) and the Contractor's own subcontractors. Unlike some English standard
forms, there is no extension of time available for the defaults of the nominated subcontractors unless the
selection of the nominated subcontractor was so bad as to amount to "delay, impediment or prevention by
the Employer" within clause 44.1 (Extension of time for completion) item (d). Similarly, if the nominated
subcontractor has any design obligations under clause 59.3 (Design requirements to be expressly stated),
the Contractor is to be given an indemnity under the nominated sub-contract but remains liable to the
Employer. The position in contract is to be contrasted with the position in tort under English law whereby a
contractor is only liable for the defaults of his independent subcontractors if the contractor was negligent
in their appointment or, possibly, their supervision: see the decision of the House of Lords in D & F
Estates v Church Commissioners (1988) 3 WLR 368.
Because of the danger imposed by clause 63.1 (Default of Contractor), a Contractor should be sure of his
ground before relying upon one of the exceptions (a) to (c) for which no consent is needed. These
exceptions are new to the 4th Edition save that "the provision of labour on a piecework basis" was an
exception contained both in the 3rd Edition and ICE 5th. It is submitted that a subcontractor who provides
nothing but labour falls within exception (a). Arguably, a subcontractor who provides labour and
purchases materials which accord with the specification is also an exception. However, this would seem
to go beyond the intention of the draftsman and it would be extremely dangerous for a Contractor to
proceed on that basis. Equally dangerous would be to proceed with the purchase of materials without the
specific consent of the Engineer because if, through no fault of the Contractor or any subcontractor, the
materials delivered did not comply with the specification, the exception would no longer apply and the
Contractor would be in default.

Exception (b) could apply equally to the purchase of materials directly from the manufacturer by the
Contractor or to the purchase through a supplier. In the former case, the element of sub-contracting would
be in the manufacture itself. Presumably, (a) should be read restrictively so that consent would be
required for a subcontractor who supplied materials and provided labour to install such materials.
As to (c), the naming of such a subcontractor within the contract would entitle the Contractor to use that
subcontractor. It is not apparently necessary for the subcontractor to be a "nominated Subcontractor" as
clause 59.1 (Definition of "nominated Subcontractors") does not include the word "named". Thus,
exception (c) may apply equally to the nominated Subcontractors and other subcontractors named in the
contract. Contractors are often required to list in their tender their proposed subcontractors. If the
Contractor receives no adverse comment and his tender is accepted, it is obviously sensible that the
Contractor should have to seek no further consent. The definition of nominated Subcontractor is itself very
wide: see the commentary under clause 59.1.
In general, the Contractor will be well advised to obtain consent for his every action in connection with
sub-contracting.

4.2 - Assignment of Subcontractors Obligations

This sub-clause is intended to secure the transfer to the Employer of guarantees given to the Contractor
by subcontractors. Thus, if there is a need to claim on the guarantee, the Employer can deal directly and
is not dependent upon the survival or willing co-operation of the Contractor. The difficulty with this subclause is that virtually every subcontractor has, by entering into his sub-contract "undertaken ... [a]
continuing obligation extending for a period exceeding that of the Defects Liability Period". Whilst the
subcontractor's right or obligation to remedy defects in his works expires with the Defects Liability Period,
he has a continuing obligation to pay damages for breach of contract for defects in his works until the
expiry of the limitation period. Thus, if the clause was taken literally, the Employer would be entitled to the
assignment of all sub-contracts. Accordingly, a Contractor would be well advised to seek to amend this
clause to limit the obligations to be assigned to guarantees and obligations other than the basic
contractual obligations and/or to prohibit the Employer from pursuing the Contractor in relation to any
defects emerging from the subcontractors' works.
It may be important to appreciate the distinction, in English law at least, between assignment and other
transfers of rights such as novations. An assignment will not give the Employer the same rights as if the
contract was directly between the Employer and the subcontractor. The Employer will only have the same
rights against the subcontractor as the Contractor would have had. Thus, if for any reason the Contractor
has suffered no loss as a result of some breach by the subcontractor, the Employer would be unable to
recover against the subcontractor regardless of the loss which he had incurred. Assignments are also
subject to any rights the Contractor may have against the subcontractor, for example, a defence of set-off.
By contrast, under a novation, the original contract comes to an end and a new contract is formed
between Employer and subcontractor. Novations can be implied but normally are agreed expressly
between Employer, Contractor and subcontractor. This is necessary as, under a true novation, the
Contractor is released by the subcontractor from any liability. Assignments can only transfer the benefit of
the contract and not the burden. Novation can transfer the burden but this requires careful drafting.
This clause should be read with clause 54.5 (Conditions of hire of Contractor's Equipment), clause 54.7
(Incorporation of clause in subcontracts) and clause 63.4 (Assignment of benefit of agreement) which
seek to secure for the Employer the benefit of subcontractor, hire and supply agreements in the event of
the termination of the Contractor's employment under clause 63.1 (Default of Contractor). Terms for
inclusion in nominated sub-contracts are specified by clause 59.2 (Nominated subcontractors; objection to
nomination).

In English law, the potential liability of subcontractors to the Employer in the absence of a contractual link
is in a state of some uncertainty. The minimum requirement seems to be that the subcontractor must
either have caused physical damage to some property of the Employer other than that upon which the
subcontractor was working or have been in a special relationship with the Employer. This effectively
means that the subcontractor should be a specialist subcontractor upon whom the Employer is relying for
particular expertise or design. See the House of Lords in Junior Books v Veitchi (1983) 1 AC 520; 21 BLR
66 and the Court of Appeal's decision in Simaan General Contracting v Pilkington Glass (1988) 40 BLR
28. For an Australian view, in a case brought by a subcontractor against an Employer, see the Supreme
Court of ACT decision in S.W. Neilsen (Canterbury) v PTC Constructions (1987) B&CL 387.