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Causation of Contractor -Subcontractor Disputes: A Study of Sri Lankan

Construction Projects

Article · November 2016

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 Causation of Contractor - Subcontractor Disputes: A Study of Sri Lankan
Construction Projects

Y.G. Sandanayake and E.M.A.C. Ekanayake

Department of Building Economics, University of Moratuwa, Sri Lanka

Abstract
An energetic construction industry is an indicator of optimistic economic improvement of a country.
Successful completion of construction projects are the key signs of such an energetic construction
industry. The inherent competitive and risk prone nature of the industry, demanding the projects of
vigorous nature including construction of small houses, luxury apartments or hundreds of
kilometers of roads to world recognised iconic/modular constructions. Hence, the industry includes
profusion of stakeholders importantly Contractors and Subcontractors employed in various projects.
However, poor performance of either party can have profound effects on the other which will
directly affect to the project efficiency. Effective management of this relationship has become vital
in attaining the success of a project. When it comes to the Sri Lankan context, Contractor -
Subcontractor disputes has aroused beyond the Contractor - Subcontractor conflicts due to lack of
proper subcontracting management practices in the construction projects. Hence, there is an urgent
need to address the issue prior to put forward a step.
This paper provides an access to the causes for Contractor - Subcontractor disputes in the Sri
Lankan construction industry as the findings derived from industry practices, for effective
management of construction projects in time to come which will lead to the success of construction
projects.
1. Introduction
Subcontracting has shown its increasing prominence in the construction industry throughout the
recent decades. It is very much difficult to find out the construction projects without the
involvement of Subcontractors since the projects obtain the services of Subcontractors to perform
the specific work items that are essential. Contractors appoint Subcontractors due to various reasons
such as; lack of expertise in specific types of work, enabling them to limit their risk disclosure and
expands their available work force and hence, they have more opportunities in winning new projects
(Gould & Joyce, 2009).
In the past, there was a long term relationship between Contractors and Subcontractors rather than
having recurrent relationships. According to the current situation, the contracting organisations
more often not choose to enter into transactions with organisations whom they have previously been
involved with. Hence, the Contractor - Subcontractor relationship has been declined over the years
due to various reasons and the result of this feeble relationship has become the occurrence of
disputes.
2. What is Subcontracting?
Subcontracting is an established practice in construction industries worldwide, which has been
proven to be an economical way of project delivery, especially for the specialist works in buildings
(Francis, Joseph & Chan, 2006). It is with a critical importance of the success of a project and
selection of a Subcontractor depends on the characteristics of the project. The lower cost for
subcontract work is an enabler in drastic increment of subcontracting in recent world. On the other
hand, it facilitates innovations and specialised knowledge into the work place which can be
considered as a benefit allied with subcontracting (Moody, Mike & Hawkins, 2008).
There are three categories of Subcontractors existing in the Sri Lankan construction industry
namely; Domestic, Selected and Nominated Subcontractors. The standard forms of contracts such
as FIDIC and other developed versions are used for subcontracting in Sri Lanka
3. Contractor - Subcontractor Relationship in Subcontracting
The Contractor - Subcontractor relationship can be described under three different backgrounds
such as Legal, Contractual and Interpersonal. On the legal grounds, the Contractor is bound by the
responsibility of ‘vicarious performance or subcontracting’ (Murdoch & Hughes, 2008). This
principle is quite acceptable, except in specific occasions such as subcontracting is not be permitted,
when contracting party is selected because of his personnel qualification; skill or competence. On
the contractual backgrounds, subcontracts exist between the Contractor and the Subcontractor.
Hence, there is a privity of contract between the Contractor and the Subcontractor for both
nominated and domestic subcontracts (Lee, 2001). Since Subcontractors secure almost all their
work through Contractors, the success of the typical Subcontractor depends directly on the
relationship they establish and maintain with those general Contractors who need their expertise
(McCord, MS & Gunderson, 2013). Hence, there is an interpersonal relationship also existing in
between the parties.
4. Contractor - Subcontractor Disputes in Subcontracting
Contractors and Subcontractors who are from the different disciplines work together in construction
projects with different intensions of enhancing their profit and other commercial benefits. Hence,
the Contractor - Subcontractor relationship is often nervy and therefore inclined to disagreements
and conflicts due to a poor sense of fairness and misunderstanding of each other’s needs.
5. Causes of Contractor - Subcontractor Disputes
Contractual, legal relationship and the interpersonal relationship can be disturbed resulting disputes
between the parties. The disputes between main Contractor and the Subcontractor may develop due
to a number of reasons. Non availability of standard form of subcontract and a regulatory body for
subcontractors in Sri Lanka can be identified as major causes for disputes in subcontracts. Further,
the other causes of disputes based on the liable party can be categorised as follows.
5.1 Contractor Liable Causes of Disputes

Payment problems, poor communication of correspondence and information between main

Contractor and Client/Consultant, Contractor's capability and fairness, improper documentation of
the progress, providing low-quality materials that result in low-quality workmanship, scheduling
conflicts, assigning part of the works to new Subcontractor without informing the original
Subcontractor, and dictating relationship of the main Contractor can be identified as the major
causes for disputes caused by the main Contractor.
 5.2 Subcontractor Liable Causes of Disputes

Delay in progress, non-attendance to testing and commissioning, high rate of staff turnover, lack of
construction quality, neglecting the safety measures, low attention towards the instructions of the
main Contractor are some major reasons for disputes in subcontracts caused by the Subcontractor.
5.3 Client or Consultant Liable Causes of Disputes

Delay in providing the information such as additional drawings and benchmarks, unreasonable time
allocation for project completion, direct instruction to the subcontractor without consulting the main
Contractor and delay in releasing payments to the main Contractor are some major reasons for
disputes in subcontracts caused by the Client. Delay in approving materials samples and shop
drawings, incompetent experience of the Consultant's team, variation instruction and suspension of
main Contractor's work due to main Contractor's default can be listed as reasons for disputes caused
by the Consultant.
Conclusions
Contractor - Subcontractor relationship plays a vital role in attaining success in the construction
projects since the Contractor’s works and Subcontractor’s works are linked together. However,
Contractor - Subcontractor conflicts have been stimulated in the industry as both the parties are with
different intentions towards their gaining. At the moment, Contractor - Subcontractor disputes are at
their peak by going beyond the conflicts and affect to the project success directly. The reasons of
these disputes can be caused by the Contractor, Subcontractor and Client or Consultant. Hence,
there is an urgent need of proper subcontract management procedure allied with the involvement of
a regulatory body in Sri Lanka.
References
Francis, Y., Joseph, L., & Chan, K.T. (2006). Best Practices in Managing Specialist Subcontracting
Performance, Hong Kong: Construction Industry Institute.
Gould, F.E., & Joyce, N.E. (2009). Construction Project Management. (3rd Ed.). Upper Seattle
River, NJ: Pearson Education, Inc.
Lee, M. (2001). Contracts (Rights of Third Parties) Ordinance: Legislative Reform of the Doctrine
of Privity. Retrieved from http://www.hk-lawyer.org/content/contracts-rights-third-parties-
ordinance-legislative-reform-doctrine-privity.
McCord, P. & Gunderson, D.E. (2013). Subcontractor’s perspectives: Factors that Most Affect
Their Relationship with General Contractors - A Pacific Northwest Study, In proceedings of the
49th ASC Annual International Conference.
Moody, C., Ritey, M., & Hawkins, N. (2008). Differentiation of sub contract Organisations and
Principal Contract Organisations: through Attribute Analysis. In proceedings of the RICS
COBRA Construction and Building Research Conference, Dublin
Murdoch, J., & Hughes, W. (2000). Construction Contracts- Law and Management. (3rd Ed.).
London: Spon Press.

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