Subcontractor's obligation - Delay in Specific Scope

N/A / 21 Jan, 2025

In construction projects, delays in subcontracted work can have significant ripple effects on the overall project schedule and costs. A key question that arises is whether a contractor can pass the full amount claimed by the employer to the subcontractor for delays related to a specific subcontracted scope of work. Let’s explore this issue, considering the legal and contractual obligations, with reference to case law and FIDIC 2011 Conditions of Subcontract.

The Subcontractor's Obligation to Timely Completion

Under a subcontract agreement, the subcontractor is obligated to complete the agreed scope of work within the specified timeline. If the subcontractor breaches this obligation, the main contractor is entitled to recover losses arising from the delay. These losses may include:

    1. The contractor’s direct costs.

    2. Claims from the employer related to the delayed scope of work.

    3. Additional amounts owed to other subcontractors affected by the delay.

This means that the subcontractor is not only accountable for their own delays but also for any resulting domino effect on other parties involved in the project.

Employer’s Claims and Subcontractor's Responsibility

Sub-clause 3.4 of the FIDIC 2011 Conditions of Subcontract outlines the subcontractor's responsibilities regarding claims from the employer against the main contractor. It states that if the contractor receives a claim notice from the employer or engineer concerning the subcontractor's work, the contractor must immediately notify the subcontractor. This ensures that subcontractors are informed and accountable for claims arising from their scope of work.

Additionally, during the subcontract agreement’s formalization, the main contractor typically discloses the main contract's terms, including potential liabilities such as liquidated damages. This prevents the subcontractor from later arguing that such liabilities were unforeseen.

Case Study: M.J. Gleeson plc v. Taylor Woodrow Construction Ltd (1989)

The case of M.J. Gleeson plc v. Taylor Woodrow Construction Ltd offers valuable insight into how claims for delays are handled. Taylor Woodrow, as the management contractor, had included liquidated damages of £400 per day in both the main contract and the subcontract. When Gleeson failed to complete their work on time, Taylor Woodrow sought to recover:

    - £36,400 in liquidated damages.

    - £95,360 in "set-off" claims from other subcontractors impacted by Gleeson’s delay.

Gleeson argued that the liquidated damages were excessive and unenforceable. The court upheld Taylor Woodrow's claim for liquidated damages as per the contract but rejected the set-off claims, citing the risk of a “double deduction.” Judge Davies noted that allowing both claims would result in unjust enrichment for the contractor.

Application of Sub-Clause 8.7: Subcontract Damages for Delay

According to Sub-clause 8.7 of FIDIC 2011, the contractor is entitled to deduct delay damages from the subcontract price if the subcontractor fails to meet the specified completion time. The subcontractor's liability is capped at the amount stated in the Appendix to the Subcontractor’s Offer. If no specific amount is stated, the liability is limited to 10% of the Accepted Subcontract Amount.

This clause provides a clear framework for addressing delay-related claims while ensuring that subcontractors are not exposed to unlimited financial risks.