Subcontractor

Subcontractor can be defined as an individual or business that signs a contract to perform part
or the entire obligation of another’s contract. A subcontractor is hired by general contractor to
perform a specific task as part of the overall project.

Commonly, contractor sub the task of building and civil engineering to the subcontractor.
The purposes of subcontracting the job to subcontractor are to reduce the cost or to mitigate
project risks. Subcontractor also used to help out the contractor during the busy season.

There are several types of subcontractor. Below are the examples of subcontractor types.
They are:

1. Domestic Subcontractor
 A contractor who contract with main contractor to supply or fix any material or goods or
execute work from part of the main contractor job. This subcontractor is employed by the
main contractor.

2. Nominated Subcontractor
 Certain contracts permit the architect or supervising officer to reserve the right of the final
selection and approval of subcontractors. The main contractor is permitted to make a
profit from the use of nominated subcontractors on site, but must provide attendance
(usually provision of water, power, etc. to enable the nominated subcontractor to do his
job). In effect the appointment of nominated subcontractors establishes a direct
contractual relationship between the client and the subcontractor.

3. Named Contractor
 It is the same with domestic subcontractor.

4. Subcontractor for Labor

 Subcontractor who supplies labor required for the execution of the whole or any part on
which a contractor has contracted to carry out.
Differences between Subcontractor and Employees

Subcontractors
 Subcontractor set their own rules.
 Subcontractor provides its own material.
 Pay his own business expenses and take
the risk of not receiving payment when
work is not complete in accordance
contract.
Employees
 Employees follow rules set by their boss.
 Employer provide employee with
material to operate the facility.
 All the expenses are paid by the employer
and they will still receive a paycheck
whether their work is done or not.

Reasons why Employer encourage Subcontracting

1. Non – wage cost of employment such as training, pension and sick pay is high.
2. The increasing diverse skill base required for the growth in complexity.
3. The rising expectations of workers and a concomitant shift to freelancing.
4. Off-setting the risks associated with responsibility by transferring them.
5. Firm need to employ specialist in order to do certain special job.
Provision to Subcontract

PAM 98

The Clause 17.2 stated that contractor is prohibited from sub letting any portion or the whole
of the work to domestic subcontractor without the written consent of the architect. Unless the
contract documents identify nominated subcontractor or the contract bill include prime cost
sums.

The integrity, financial stability and performance capability of the contractor are important
consideration for architect to give consent of sub letting. However, the consent must not be
unreasonably withheld, and is subject to an objective test of reasonableness. Refusal of
consent can be challenged in arbitration under clause 34.0.

This provision is consistent with the traditional common law position whereby the main
contractor is liable to the employer for all defaults of a subcontractor whether he is nominated
or domestic.

The Malaysian PWD Form of Construction Contract (JKR 203A)

The clause 27 (a) state that contractor cannot sub – let or subcontract the whole or part of the
work except in the following situation:

A. Stated in contract documents.

B. Provision of labor on a piecework basis.
C. With the prior written consent of the Superintending Officer.

This clause same with the PAM 98 which provides that the contractor shall be responsible for
the due observance of the contract by these subcontractors including for their acts, defaults
or neglects, which is consistent with the position under the common law.
CIDB Standard Form of Contract for Building Works 2000 Edition

As addition under clause 40.4, employment of the subcontractor shall determine immediately
upon the determination of the contractors employment. In this provision, it stated that the
power to subcontract is depend upon the term in primary contract. An employer expressly
authorise his contractor to subcontract is bound by that consent, whether given
simultaneously with the making of the contract or later.

Payment Issues

There are two payment clause, they are “pay-when-paid” and “pay-if-paid.” Pay-when-paid
means the subcontractor will be paid by the owner after the contractor gets paid by the owner;
many courts traditionally have interpreted pay-when-paid provisions as unconditional
contracts to pay after a reasonable period of time has elapsed. Pay-if-paid means the
contractor will pay the subcontractor if the contractor receives payment from the owner.

Clause 11(b) of the subcontract provided that the contractor shall notify and pay to the
subcontractor the total valued certified within 5 days of the receipt by the contractor of the
sum included in any certificate of the architect.

In subcontract work, there will be no payment for the extra work whereby if there is delay.
Subcontractor cannot claim the losses incurred during the delay time. Subcontract job can be
extended if the main contractor extend the period of the contract.

As for the situation where the employer who hired a subcontractor is bankrupt, the employer
should prioritize to pay the wages of the subcontractor over other debt. It is stated in
Employment Act 1955 employer should pay the wages to the subcontractor they hired which
include termination and lay-off benefits, annual leave pay, sick leave pay, public holiday pay
and maternity allowance.