Nominated Subcontractors

Much major construction work is carried out by subcontractors, and although the contract for the whole building is placed with the main contractor, his function is to carry to out only part of the work himself. The remainder of the work is carried out by specialists, whose work the main contractor must co-ordinate and for whose acts and defaults he is responsible to the employer.
This is the classic system and one readily understood by lawyers, but in the UK --for a variety of reasons, both technical and legal -- it is common practice for the employer (through his architect) to nominate specialist subcontractors and require the contractor to subcontract with thos especialists for the carrying out of particular (and often substantial) parts of the contract work as a whole.
This solution has, unfortunately, raised as many problems as it has resolved, and there is a large and growing body of case law on the topic. (Starting off with J Jarvis & Sons Ltd v Westminster City Council [1970] 1 All ER 943 and continuing with T A Bickerton & Son Ltd v North West Metropolitan Regional Hospital Board [1970] 1 All ER 1039; Percy Bilton Ltd v Greater London Council (1981) 79 LGR 463, all decisions of the House of Lords. Fairclough Building Ltd v Rhuddlan Borough Council (1985) 3 ConLR 14, CA and Equitable Debenture Assets Corporation v William Moss & Sons Ltd (1985) 2 ConLR 1, His Honour Judge Newey QC are also in point.) It has also meant that there is a need for complex provisions in the main building contract to cover likely eventualities as well as sophisticated subcontract documentation. It is against this background that the recent decision in John Jarvis Ltd v Rockdale Housing Association Ltd (29 November 1985, unreported; noted in (1986) Construction Industry Law Letter 238, and to be fully reported in Constructio n Law Reports, vol 5, in July) must be studied and the case is important from several points of view. It is the first case to arise under te comparatively new and completely redrafted nomination clause of the Joint Contracts Tribunal's Standard Form of Building Contract (1980 edition) (JCT 80), which is complex both in its woridng and operation. It also decides a novel point of interpretation and a study of the judgment will be essential for any practitioner consulted about problems consequent on a nominated subcontractor's default.
Facts
Jarvis was main contractor under a contract in JCT 80 standard form. Rockdale, through their architect, nominated Elmat Piling Ltd for the pile foundations and Jarvis duly entered into a subcontract with them using the JCT Standard Form of Nominated Subcontract NSC/4. Elmat also entered into a direct collateral contract with Rockdale in consideration of the nomination using another JCT document, NSC/2, under which, inter alia, they gave warranties about design, selection of materials, and the satisfying of any performance specification. Those warranties were expressed so as not to affect Elmat's contractual obligations to Jarvis 'under subcontract NSC/4 in regard to the supply . . . of workmanship, materials and goods'.
Piles proved defective, but Elmat claimed that they had done all they were bound to do. On 13 July 1983 Jarvis wrote to the architect: 'We are of opinion that it would be quite imprudent to proceed any further than the excavation and cut-off [of the pile caps] stage until it is known what is happening in connection with the piles . . . We are finding ourselves in a totally invidious position due to our inability to obtain clear directives and instructions and feel that our whole contract is becoming frustrated through no fault of our own.'
On 15 July the architect replied: 'We agree with you that it would be imprudent to proceed any further with the work in connection with the ground beams, and you should cease work on this element of the contract . . .'. The letter went on to indicate that if Elmat remained in default, Jarvis might determine the subcontract, thus leaving the way open for a renomination to take place.
On 18 July Jarvis asked Elmat what their intentions were, and their response appeared to be a repudiation of the subcontract, although this was subsequently disputed. No renomination took place and on 8 September Jarvis gave notice under cl 28.1.3.4. of determination of their employment on the grounds that 'carrying out of the whole or substantially the whole of the uncompleted works has been and is suspended for a continuous period of one month by reason of the architect's instruction of the 15 July issued under cl 23.2. to cease work on the ground beams'. Rockdale contended that this notice was invalid and subsequently gave notice itself of determination under cl 27.
The Issues and the Law
Jarvis sought a declaration that its letter of 8 September constituted a valid determination and that Rockdale's determination was invalid as well as claiming sums due or alternatively damages. Rockdale denied the validity of Jarvis's determination, asserted that they had determined the contractor's employment and counter-claimed payment of sums due to them under the contract, and alternatively damages.
Mr Recorder Ronald Bernstein QC, sitting on Official Referee's business had to decide a number of preliminary issues, some of a highly technical nature. Having decided that the architect's letter was an instruction to postpone work, he had to consi der whether the instruction was caused 'by reason of some negligence or default of the contractor' (cl 28.1.3.4.) because if it was, Jarvis was not entitled to determine its employment by notice. This involved a consideration of the scheme of JCT 80 and the contractor's liabilities for subcontractor default. Under the nomination clause, cl 35.21. provides that 'whether or not a nominated subcontractor is responsible to the employer in the terms set out in cl 2 of NSC/2, the contractor shall not be responsible to the employer in respect of any nominated subcontract works for anything to which such terms relate . . .', including the satisfaction of any performance specification or requirement, but his obligations in regard to workmanship and materials are unaffected. In the judge's view, nothing in that subclause operated to prevent Elmant's breach of its subcontract, to use adequate materials and workmanship in the construction of the piles.
However, as the learned judge pointed out, the contractor's obligation to carry out and complete the whole of the works is, in respect of prime cost work, an obligation to complete it by means of a nominated subcontractor and not by any specified subcontractor. Indeed, the contract terms envisage tht a nominated subcontractor may fail and a substitute be nominated. 'Mere non-completion by a nominated subcontractor does not in my opinion constitute a breach of contract by the contractor', he said. Even if Elmat's conduct up to 15 July amounted to a breach of Jarvis's obligations to the employer, in his view it did not follow that the notice was caused by the 'negligence or default of the contractor'. The breach did not result in any way from any fault of Jarvis and could fairly be called a technical breach.
The conjunction of 'negligence' and 'default' in cl 28.1.3.4. and the absence of any reference to servants or agents or subcontractors, etc. as in other subclauses showed plainly that the words 'some negligence or default of the contractor' meant the contractor personally and not the negligence or default of a subcontractor. 'Adding the word "default" can change the nature of the act comprehended', he said 'but it does not extend the ambit of responsibility for servants or agents of the contractor or of nominated subcontractors or of their servants or agents'. Accordingly, a technical breach of the main contract resulting from a substantial breach of subcontract was not negligence or default of the contractor as those words are used in JCT80, cl 28.1.3.4. Mr Recorder Bernstein stated that apart from authority he would have decided this issue in favour of the contractor, but went on to consider the decision of the House of Lords in North West Metropolitan Regional hospital Board v T A Bickerton & Son Ltd. [1970] 1 WLR 607 and the views expressed by their Lordships. He concluded from the speeches and on the facts before him, that if the contract had been in the same form as in Bickerton, their Lordships would have decided the issue in favour of the contractor. Although the JCT contract was amended in 1980, the learned judge could not find any differences between the two forms as would make their Lordships' analyses in Bickerton inapposite. Moreover, he was able to draw support from the views expressed by Diplock LJ, as he then was, in P & M Kaye Ltd v Hosier & Dickinson Ltd [1972] 1 WLR 146 at p. 1650. Diplock LJ there expressed the opinion, admittedly obiter, that temporary disconformity with contract resulting from breach of a subcontract does not of itself amount to breach o f contract by the contractor.
With respect, it is suggested that ,r Recorder Bernstein's approach and interpretation is both correct and just. It is in full conformity with the Bickerton rationale and the various judicial analyses of the position of nominated subcontractors in subsequent cases. (The whole of this problem area is discussed in a recent monograph, Default by Subcontractors and Suppliers by John Parris (Collins, 1986)) Default of a nominated subcontractor -- chosen at the behest of the employer and imposed on the contractor -- is not 'negligence or default' of the contractor unless the contract plainly makes it so.
John Jarvis LTd v Rockdale Housing Association Ltd is, I suspect, the first of many cases that will reach the courts on the position of nominated subcontractors and liability for them under the current JCT standard form, although this view is not shared by many architects and quantity surveyors who consider that the revamped provisions are simplicity itself. (For the many problems arising on determination of construction contracts see Determination and Suspension of Construction Contracts by V Powell-Smith and J Sims (Collins 1985).)