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Criteria for Selecting Nominated Subcontractors in Commercial Building


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M.N.N. Rodrigo Kanchana K.S. Perera


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Selection of Nominated Subcontractors in
Commercial Building Construction in Sri Lanka
M.N.N. Rodrigo, B.A.K.S. Perera
Department of Building Economics
University of Moratuwa
Sri Lanka
navomail@gmail.com, pererabaks@gmail.com

Abstract—The construction industry comprises of numerous become a necessity to achieve the requirements of the client
Nominated Subcontractors (NSCs) employed in various projects. successfully.
Besides, plentiful NSCs enter into the industry due to ease of
entry. However, all NSCs might not possess the required Owing to the availability of easy entry into the construction
expertise to fulfill client’s requirements. Thus, various issues industry, many subcontract organizations have established but
have aroused due to improper selection of NSCs creating with very little capital investment [6]. Therefore, most of these
selection of NSCs vital. The study comprised of interviews and organizations may not be provided with the expertise needed to
questionnaire survey to derive at the aim of this research. fulfil the client’s requirements successfully [7]. Hence,
Besides, to understand and compare nominated subcontracting selection of proper nominated subcontractors (NSCs) is
practices between Sri Lanka and other countries, a literature essential. Thus, various issues aroused due to improper
synthesis followed by interview and questionnaire survey were selection and solutions to overcome these issues have been
executed. The issues aroused due to improper selection and identified to manage the selection of NSCs successfully.
solutions to avoid them were identified through the literature
synthesis; validated through the interviews; ranked through the A. Research Problem
questionnaire survey. On a positive note, selection method of
NSC; subcontract signed between Main Contractor (MC) and Internationally few researches have been conducted on
NSC are used in Sri Lanka equalizing the nominated factors affecting to subcontractor selection [8], selection of
subcontracting practices in other countries. However, there is no domestic subcontractors [9] and influence of procurement to
form of subcontract prepared for Sri Lankan usage; no subcontractor involvement [10]. On the other hand though
compulsory subcontractor registration procedure in Sri Lanka. some researches related to subcontracting have been carried out
Further, the most critical issue due to improper selection of NSC, by international researchers, the findings cannot be directly
is delays occurred by NSC. Moreover, NSC’s program being in extracted towards the Sri Lankan construction industry as each
line with MC’s program was recognized as the most important construction industry differs from one country to another.
solution to avoid this issue. Hence, these solutions assist to avoid
the occurrence of issues related to selection enabling proper In Sri Lankan context, Ganesharajah [11] has done a
selection of nominated subcontracting practices. research on factors affecting subcontractors’ bidding decisions
and Bandara [12] have suggested alternatives to nominated
Keywords—commercial buildings; nominated subcontractor; subcontracting system in his research. However, the issues
selection enumerated due to improper selection of NSCs related to
commercial buildings in Sri Lanka have not been conferred by
I. INTRODUCTION any means. Further, nominated subcontracting is extensively
accomplished in the construction industry [13]. Hence, there is
The construction industry comprises of different a necessity to identify issues aroused due to improper selection
subcontractors with different skills working for different of NSCs and solutions to prevail over these issues to ensure a
organizations in different geographical locations for different better subcontracting practice.
projects [1]. Nowadays, all building projects involve large
proportions of subcontractors [2]. Modern sophisticated
B. Aim
buildings comprise of highly complex artefacts which denotes
the need for various specialist works to be carried out by The aim of this research is to enhance a better practice of
various subcontractors [3]. Moreover, Karim et al [4] declared selection of nominated subcontractors in commercial buildings
that ninety percent of the construction work is carried out by in the Sri Lankan construction industry.
various subcontractors while Main Contractor (MC) mostly
focuses on management and coordination. Further, Yates and C. Objectives
Hardcastle [5] revealed that the nature of the specialist works  To understand and compare the nominated
and unsatisfactory management of subcontractors can lead to subcontracting practices between Sri Lanka and other
various problems such as conflict and disputes between the countries.
parties, issues related to quality, project delays etc. Thus,
appropriate management of nominated subcontractors has

978-1-4799-1740-2/15/$31.00 ©2015 IEEE

210
 To identify and rank the current issues aroused due to IV. RESEARCH FINDINGS AND ANALYSIS
improper selection and solutions to avoid these issues in
commercial buildings in Sri Lanka. A. Comparison on Nominated Subcontracting Practices in
Sri Lanka and Other Countries
II. LITERATURE SYNTHESIS The nominated subcontracting practices in other countries
(Singapore, UK, Hong Kong and Australia) were depicted
A. Subcontracting through the literature synthesis as illustrated in Table I. In order
Hoban and Francis (as cited in [14]) have defined a to compare these practices with the Sri Lankan practice
subcontractor as a specialist who is hired by the MC to perform (Objective 1), the interviews and questionnaire survey were
specific tasks on a project as part of the overall contract. From carried out.
the contractual point of view subcontractors are categorized as The semi structured interviews were conducted among four
domestic subcontractors and nominated subcontractors. professionals currently involved in the construction industry
Furthermore, Mbachu [14] defines domestic subcontractor as a who comprised of work experience for more than 25 years.
person who is hired by the MC as per the MC’s consent to Further the questionnaire was distributed among 82
perform specific tasks while NSC is nominated by the client or professionals in Sri Lanka and overseas who have experience
client agent to undertake specified aspects of the main contract. in the Sri Lankan Construction Industry while 55 responded
effectively.
B. Selection of Nominated Subcontractors
The findings of the semi-structured interview and the
At present, building projects encompass large proportions questionnaire survey along with the findings of the literature
of work entirely handled by subcontractors [15]. Hence, Dow synthesis were summarized as illustrated in Table I to
et al. [2], Artto et al. [16] and Enshassi et al. [17] declared that accomplish objective 1.
subcontractor selection in projects is critical for projects’
success.
TABLE I. COMPARISON OF NOMINATED SUBCONTRACTING PRACTICES
C. Nominated subcontracting practices in other countries Practice Other Countries Sri Lanka
Various countries practice nominated subcontracting in Selection Selective Tendering and Interviews
different manners. Hence a comparison on nominated method of Direct Negotiation used in Selective Tendering and
NSC Singapore, UK, Hong Direct Negotiation
subcontracting practices was carried out among the countries, Kong and Australia [18], Questionnaire Survey
Singapore, United Kingdom (UK), Hong Kong and Australia. [19], [20] and [8]. Selective tendering-51%
The comparison done on these countries signifies that Direct negotiation-42%
nominated subcontracting practices vary from one country to Open tendering-7%
another. In all four countries nominated subcontract is formed Subcontract Yes [21], [22], [3] and [8] Interviews
between MC and NSC and selection method are similar but signed Yes
between MC Questionnaire Survey
forms of subcontract used and subcontractor registration are and NSC Yes - 67% No - 33%
different from one another. Besides, a comparison has been Form of Prepared by each country Interviews
carried out under Heading A (Refer Table I). Subcontract for their own usage. E.g. Mostly FIDIC
SIA (Singapore Institute Conditions of
of Architects) Subcontract Subcontract is used
III. RESEARCH METHODOLOGY used in Singapore [18]; Questionnaire Survey
An extensive literature synthesis was carried out to enhance Agreement and FIDIC Form of
Conditions of Sub- Subcontract - 63%
the knowledge on subcontracting and derive at the objectives Contract issued by Other-33%
of the research; to understand and compare the nominated Department of Finance
subcontracting practices between Sri Lanka and other countries 2007 used in UK;
and to identify the current issues and the solutions to avoid Standard Form of
these issues of nominated subcontracting in the commercial Building Contracts 2005 -
buildings in Sri Lanka. Nominated Sub-contract
used in Hong Kong [3];
However, the literature findings were based on Australian Building
Industry Contract (ABIC)
subcontractors in other countries. Therefore the findings had to
Subcontract forms used in
be validated. Thus, four interviews were carried out to validate Australia [23].
the literature findings and further the interviewees added more Subcontractor Practiced in Singapore, Interviews
to the existing findings. Subsequently the questionnaire survey Registration UK, Hong Kong and Not practiced
was carried out to rank the issues and solutions and to identify Australia where Questionnaire Survey
the most critical issue and most important solution to avoid that subcontractor registration No - 76% Yes - 24%
under the relevant
issue. Further, the data collected through interviews were regulatory body is
analyzed using code based content analysis method, NVIVO compulsory [24], [25],
and the data collected through the questionnaire survey was [26], [27], [28].
analyzed using SPSS.

211
According to the findings of the literature synthesis, There were ten issues identified through the literature
interviews and questionnaire survey, it was found that the synthesis and validated through the interviews which are
selection methods used to select NSC and signing of aroused due to improper selection of NSC. In order to rank
subcontract between MC and NSC are almost similar in other these issues and identify the most critical issue the data were
countries and Sri Lanka. analyzed using the Mean Rating (MR). The equation of Mean
Rating is as follows.
However, though other countries use Form of Subcontract
prepared by their own country, Sri Lanka uses the FIDIC Form
of Subcontract and other forms of subcontract prepared by the
organization for their usage. On the other hand, in other
countries the NSCs are registered under the respective Where: MR= Mean Rating for an attribute; Fi= Frequency
regulatory body of each country but in Sri Lanka all NSCs are of responses for an attribute (ranging from 1-5); %R=
not registered under Construction Industry Development Percentage response to rating point of an attribute.
Authority (CIDA).
Consequently these issues were ranked through the
On the other hand, it was discovered that the Sri Lankan questionnaire survey and the respondents had commented that
construction industry is very informal when compared with “Delays occurred by NSC” is the most critical issue where the
other countries due to lack of these essential nominated Mean Rating was calculated as 4.64. The second most critical
subcontracting practices. Therefore, government should take issue was identified as “Subcontractor’s incompetency” which
necessary actions to rectify the weaknesses in the current comprised of a Mean Rating of 4.49. Moreover, “Defects in
nominated subcontracting practices. In order to improve the NSC’s works” was ranked as the third most critical issue.
improper nominated subcontracting practices in Sri Lanka, the
issues aroused due to improper selection and solutions to avoid
these issues were recognized and ranked. D. Importance of Solutions
Subsequently, the solutions identified through the literature
B. Identification of issues aroused due to improper selection synthesis and interviews were ranked using (1), mean rating to
and solutions to avoid these issues analyze the collected data throughout the questionnaire survey
to identify the importance of the solutions to avoid these issues.
Various issues aroused due to improper selection and The findings are as illustrated in Table III.
solutions to avoid these issues were identified through the
literature synthesis and further the identified issues and
solutions were validated through the interviews and further TABLE III. IMPORTANCE OF SOLUTIONS
additions were made through the interviews. The issues and Issue Solutions MR Rank
solutions recognized through the interviews are highlighted in I-1 NSC’s program should be in line with the 4.31 1
bold text in Table II and III. MC’s program
Allow clauses related to liquidated damages in 4.20 2
C. Criticalness of the issues the tender document
NSC should have a proper program 3.98 3
Throughout the questionnaire survey, the respondents were
requested to rank the issues using a likert scale of 1 to 5 to Background study to check on the NSCs’ 3.89 4
identify the criticalness of the issues and results are as depicted history of work
I-2 Check on subcontractor’s experience, 4.18 1
in Table II. proficiency and capacity to deliver quality
work on time
TABLE II. CRITICALNESS OF ISSUES Technical abilities substantiated by 3.82 2
qualifications of directors, management and
Code Issue MR Rank supervisory staff, number of skilled and semi-
I-1 Delays occurred by NSC 4.64 1 skilled labours who are permanent employees
of the companies
I-2 Subcontractor’s incompetency 4.49 2 Provide performance bond 3.78 3
I-3 Defects in NSC’s works 4.45 3 Good supervision on NSC’s works 3.62 4
I-4 Non-efficiency of employees 4.38 4 Establish mandatory subcontractor registration 3.44 5
I-5 Subcontractor insolvency 4.20 5 Use QA system of Contractors to select 3.42 6
subcontractors
I-6 Imperfection in MC-NSC relationship 3.98 6 I-3 Implementation of quality management system 4.05 1
I-7 Inability of MC to control NSC 3.89 7 Compulsory quality certification and 4.00 2
I-8 Reluctance to spend money on health and safety 3.87 8 occupational licensing
Assurance of appropriate skills 3.78 3
I-9 High wastage of materials 3.78 9
Adopt zero defect initiative/policy 3.76 4
I-10 Poor awareness of health and safety 3.73 10
To check on quarterly reports submitted to 3.47 5
maintain ISO standards

212
Issue Solutions MR Rank Issue Solutions MR Rank
I-4 Ensure properly trained employees work at site 4.22 1 I-9 Avoid errors in calculation of materials 3.75 5

Not to overload the NSC with many projects 3.93 2 Introduce reusing or recycling processes 3.55 6

To allow clauses related to liquidated 3.87 3 I-10 Use health and safety environment and 4.31 1
damages in the tender document make aware
Proper attention to the NSC’s works 3.84 4 Appointment of supervisory personnel 3.84 2

To provide project specific training 3.71 5 Subcontractors learn to work safely through 3.69 3
common sense, mistakes over the others and
Pay for the quantity of work done 3.58 6 watching others
Off-the job training 3.65 4
Maintain proper co-ordination with relevant 3.51 7
parties
I-5 Check on financial capacity, substantiated by 4.31 1
audited accounts that show their assets and Further, the solutions to avoid these issues were ranked by
liabilities, profit and loss for the past years the respondents in order to identify the most suitable solution
Check on credential of the companies including 4.25 2
job references, past performance records, for each separate issue. To avoid the issue, delays occurred by
current projects at hand NSC, the solution, ‘NSC’s program should be in line with the
Obtain advance payment security 4.16 3 MC’s program’ was identified as the most important solution
with a Mean Rating of 4.31 ‘Allow clauses related to liquidated
Obtain performance bond 4.15 4
damages’ was ranked as the second most important solution
Credibility check before awarding of 4.02 5 followed by ‘NSC should have a proper program’ which was
subcontract depicted as the third most important solution.
Avoid use of direct contract 3.33 6
‘Check on subcontractor’s experience, proficiency and
Add provisions in contract to deal with 3.22 7 capacity to deliver quality work on time’ was identified as the
bankruptcy of subcontractor
Establish a project bank account 2.56 8
best solution for the issue, subcontractor’s incompetency, with
a Mean Rating of 4.18. The second most important solution
I-6 Develop better communication 4.18 1 recognized was ‘Technical abilities substantiated by
Contract management and contract 4.04 2
qualifications of directors, management and supervisory staff,
administration number of skilled and semi-skilled labours who are permanent
Feedback 3.96 3 employees of the companies’. Consequently ‘Provide
performance bond’ was identified as the third most important
Background study to be conducted before 3.56 4
selection to check on subcontractor’s working
solution to avoid this issue.
relations with MC In order to avoid the issue, defects in NSC’s works,
Reduce the number of layers/ tiers of 3.55 5
subcontracting to effectively manage the
‘Implementation of quality management system’ with a Mean
communication gap Rating of 4.05 was ranked as the most important solution.
Early selection of subcontractor 3.29 6 Further, ‘Compulsory quality certification and occupational
licensing’ was recognized as the second most important
Partnering 3.24 7
solution with a Mean Rating of 4.00 followed by ‘Assurance of
Appoint a facilitator for management 3.04 8 appropriate skills’ with a Mean Rating of 3.78.
Let MC and NSC decide on the staff 2.91 9 ‘Ensure properly trained employees work at site’ was
together ranked as the most important solution to avoid the issue, non-
I-7 Have separate project management system 3.53 1 efficiency of employees, with a Mean Rating of 4.22.
Avoid direct payment clauses 3.47 2 Moreover, ‘Not to overload the NSC with many projects’ and
‘To allow clauses related to liquidated damages in the tender
Keep to formalities 3.33 3 document’ were ranked as the second and third most important
Observe main contractor-subcontractor 3.09 4 solutions with mean ratings of 3.93 and 3.87 respectively.
relationship
I-8 Allow provisions for safety when pricing 4.27 1 In addition to that, the most important solution to avoid the
issue, subcontractor insolvency, was revealed as ‘Checking on
Make/inculcate safety culture at sites 4.16 2 financial capacity, substantiated by audited accounts that show
Make MC to provide safety equipment, site 3.65 3 their assets and liabilities, profit and loss for the past years’
doctor etc. with a Mean Rating of 4.31. ‘Checking on credential of the
I-9 Efficient usage of construction materials 4.35 1 companies including job references, past performance records,
current projects at hand’ and ‘Obtaining advance payment
Identify waste management solutions 4.00 2
security’ were recognized as the second and third most suitable
Develop efficient and convenient ways to deal 3.87 3 solutions to avoid this issue.
with waste
Proper training to workers to engage in less 3.85 4 ‘Develop better communication’ was ranked as the most
wasteful practices important solution to avoid the issue, imperfection in MC-NSC
relationship, with a Mean Rating of 4.18. ‘Contract

213
management and contract administration’ and ‘Feedback’ were Altogether ten issues were identified which had aroused due to
declared as the second and third most important solutions with improper selection of NSC such as subcontractor insolvency
Mean Ratings of 4.04 and 3.96 respectively. and subcontractor’s incompetency. Moreover the solutions to
avoid these issues were identified. Thus, to avoid the issue
The most important solution to avoid the issue, inability of subcontractor insolvency which had aroused due to improper
MC to control NSC, was recognized as ‘Having separate selection, solutions such as check on financial capacity, obtain
project management system’ with a Mean Rating of 3.53. performance bond, establish project bank account and obtain
Subsequently, ‘Avoid direct payment clauses’ and ‘Keep to advance payment bond were recognized.
formalities’ with Mean Ratings of 3.47 and 3.33 turned out to The mean ratings of the issues and solutions were
be the second and third most important solutions. calculated to rank the issues in order to identify the most
‘Allow provisions for safety when pricing’ was identified critical issue and to rank the solutions in order to identify the
as the most important solution to avoid the issue, reluctance to most important solution to avoid each issue. Thus, Delays
spend money on health and safety with a Mean Rating of 4.27 occurred by NSC was identified as the most critical issue
followed by ‘Make/inculcate safety culture at sites’ and ‘Make aroused due to improper selection while the NSC’s program
MC to provide safety equipment, site doctor etc.’ respectively. being in line with the MC’s program was identified as the most
suitable solution to avoid this issue. Therefore, it can be
To avoid the issue, high wastage of materials, ‘Efficient concluded that in order to manage the nominated
usage of construction materials’ was revealed as the most subcontracting practices these solutions to the issues play a
important solution with a Mean Rating of 4.35. Further, vital role. Hence, ultimately the aim of this research which is to
‘Identify waste management solutions’ and ‘Develop efficient enhance a better practice of selection of nominated
and convenient ways to deal with waste’ were ranked as the subcontractors in commercial buildings in the Sri Lankan
second and third most solution with Mean Ratings of 4.00 and construction industry has been accomplished.
3.87. This research recommends the government or a responsible
Additionally, ‘Use health and safety environment and make regulatory body needs to involve in managing the nominated
aware’ were recognized as the most important solution to avoid subcontracting practices within the Sri Lankan context. Hence,
the issue, poor awareness of health and safety, with a Mean compulsory subcontractor registration should be established
Rating of 4.31. Further, ‘Appointment of supervisory and further the regulatory body needs to monitor the process to
personnel’ and ‘Subcontractors learn to work safely through ensure all NSC are registered and necessary requirements are
common sense, mistakes over the others and watching others’ fulfilled and maintained throughout. Moreover, a form of
were revealed as the second and third most important solutions subcontract, suitable to the Sri Lankan construction industry,
to avoid this issue with Mean Ratings of 3.84 and 3.69. needs to be developed by the respective regulatory body in
order to minimize the prevailing issues related to nominated
subcontracting practices. The obligation lies with the
V. CONCLUSIONS AND RECOMMENDATIONS
government to convert the current informal construction
The construction industry comprises of numerous building industry into a formal construction industry. Furthermore,
projects which involve large proportions of subcontractors. selection of NSCs plays a vital role. Hence, the management of
Further, the modern sophisticated buildings contain extremely NSCs should commence at the selection stage and should
complex products which denote the need for various specialist continue throughout until practical completion. Thus,
works to be carried out by various subcontractors. Owing to the management of nominated subcontractors is salient to improve
availability of easy entry into the construction industry, many the efficiency of the construction
subcontract organizations have established but with very little
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