The inclusion of ‘sub-contracting’ rights under EPC Contracts

Depending on their size and local capacity, the Contractor may not be able to carry out all construction activities.  In fact it is unlikely that they will be competent in all of the aspects of work necessary to complete the facility’s construction.  They will naturally need to be able to sub-contract parts of the works accordingly.  Renewable energy projects require cross-disciplinary competency in civil, structural, electrical, mechanical and electronic engineering, and the appointed Contractor may not have all this in-house.

This should not be a complicated part of the contract (at least from a technical point of view; legal speak may be different.)  There is normally a schedule of approved sub-contractors that the Contractor can approach and appoint directly, and this schedule will often include a limit on the overall contracting price or value of works that may be carried out by each sub-contractor.  The list of approved sub-contractors should have been reviewed prior to signing the contract.  This will help to ensure that all the sub-contractors are considered to be competent, and that no single sub-contractor is awarded work that is considered to be more than they have capacity for, or competency to manage.

The Employer may also wish to limit the types of works that may be sub-contracted or require that approval is required prior to the Contractor sub-contracting certain aspects of work.  For instance, they may require that onsite project management responsibilities remain with the Contractor.

The appointment of any new sub-contractors, after the conclusion of the contract, needs to be passed by the Employer and the Employer should have the right to present objections or comments on the suitability of the proposed sub-contractor.

It is important that the appointment of a sub-contractor does not, in any way, relieve the Contractor of their obligations under the contract.  They should also be required to pay sub-contractors timeously for completed works. The non-payment of sub-contractors for work that has been demonstrably completed according to task orders presents a risk to the Employer, as this could result in lengthy disputes, or the sub-contractors downing tools.  While the responsibility for resolving this lies with the Contractor, it can be the Employer who’s left with poor quality work, or extended project delays down the line.

The same principles apply for equipment suppliers.  There should be an approved list of suppliers for major equipment, and any changes should need to be passed by the Employer.  Refer to a previous post on contract variations if you’d like to read a bit more on this.