What form of contract agreement should i use to engage downstream for provision of bespoke, designed components fabricated and assembled off site?

Question

The main contract is a JCT D&B form and the supplier has an element of design responsibility. Metalwork fabrication is carried out at the supplier's premises and assembled and fixed to adjoining structural components off-site before being shipped to site for final installation by another supplier under a separate domestic sub-contract agreement.
What are the considerations, pros and cons of engaging the work under suppliers purchase order conditions or domestic sub-contract arrangements?

Tom Spilsted · Accepted Answer

Steve, this is a topic I have been giving a lot of thought to over the last few months, in particular with the continuing emphasis on modern methods of construction where multiple components are manufactured and integrated off site. My initial conclusions based on some years of procuring and resolving final accounts for in particular toilet pods in student accommodation and PRS projects is as follows.
1. As an industry we have a suite of standard sub contract forms (which always require a set of amendments for main contract integration) designed to cover most eventualities in the procurement supply chain. These are well understood and the administration of them clear across the contractual chain.
2. Supplier purchase orders are fine if you are buying standard products, where it is bespoke and has a design liability, in my view they are totally unsatisfactory and often lead to the wrong component or performance being procured.
3. The use of a subcontract allows both parties to agree exactly, and scope out, what the specification is and what design responsibility is being taken. A purchase agreement isn't really set up for that type of approach.
4. Where in your example the metal fabrication is bering supplied and fixed to adjoining structural components this works fine where the installing subcontractor is also the procurer of the metalwork, where it is the main contractor and it is effectively issued "free of charge" to the installing subcontractor this can lead to all of the arguments about damage, waste, incorrect when issued etc etc.
5. Quality control where everything is manufactured off site - this brings key challenges and simply inspecting when delivered isn't sufficient. Before a subcontract order is placed agreement must be reached on how quality will be managed and signed off as acceptable to specification. Two main approaches are available - regular visits to the factory / or an inspector based there say 2/3 days per week, alternatively the use of industry wide QA software and virtual visits. Personally I can see the advantages in the virtual but I believe random factory visits to ensure and validate the virtual should be completed.
6. Manufacturing programme and progress monitoring - as with all project activities a detailed logic linked programme needs to be agreed and monitored, this will involve factory activities (such as setting up jigs etc) that are not yet the norm in project programmes and will include detailed design activities and supplier material delivery integration.
7. The final challenge is how the risk of programme compliance (including LAD's and other damages) is incorporated, this as always is by negotiation and hopefully who is best placed to manage the risk.

One hard lesson to ensure is reviewed is insurance cover for the components whist at the works and whilst being transported, if damaged or lost on route in say a lorry accident who or what covers the delay to the project?
Any thoughts on this latter point @Dave Cahill ?

What form of contract agreement should i use to engage downstream for provision of bespoke, designed components fabricated and assembled off site?

Specialist-subcontractor

Offsite-Manufacturing

contract

offsite-construction

Steve Hardy

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