We have two separate contracts with our client:
• Fabrication NEC3 Sub-Contract Option A
• Installation NEC3 Sub-Contract Option C
The below is a note of the Z Clause.
• Acknowledgement of Sub-Contract for Supply and Manufacture of Support Structure: Z19
Z19.1 The Contractor has appointed the Sub-Contractor to supply and manufacture the RVSS Support Structure and HEPA Filter Frames under a separate sub-contract agreement (the “Supply Sub-Contract”). The Sub-Contractor acknowledges that an event of default, breach or non-performance by the Sub-Contractor under the Supply Sub-Contract may adversely affect the Sub-Contractor’s ability to provide the Sub-Contract Works under this Sub-Contract, including causing delay and/or increasing the total of the Sub-Contractor’s costs (a “Supply Sub-Contract Default Event”). For the avoidance of doubt Supply Sub-Contract Default Event is not a compensation event for the purposes of this Sub-Contract and the Sub-Contractor is not entitled to an increase in the Prices or a change to any Key Date or Completion Date under this Sub-
Contract due to any such event or circumstance. Any costs incurred by the Sub-
Contractor under this Sub-Contract due to a Supply Sub-Contract Default Event shall be treated as Disallowed Cost.
We are nearing completion on both contracts (Fab completion Dec ‘19/Jan ‘20 & Install March ‘20). We have fabricated and installed items which have subsequently been discovered to be defective.
We have requested a concession for the defect to be accepted. A request has been made for us to provide a quotation to rectify the works (ultimately seeking a saving).
The client has now issued an instruction to us:
The details of the instruction are;
The Contractor notes the following matters which are deemed to be “Supply Sub-contract Default Events”:
• Throughout the course of the Works, the Subcontractor has failed to a revised programme, as required by clause 32.2
• The Subcontractor has manufactured defective items of steelwork which have been dispatched to site without rectification, as required by clauses 40 though to 45.
• The subcontractor has poorly managed engineering and/or design configuration matters, subsequently delaying delivery of the Works
• The subcontractor has failed to procure and/or provide materials in accordance with the timescales stated within the Sub-contract programme and/or Key Dates
As a direct result of the aforementioned maters, the Subcontractor and has incurred costs and delay to Works under the Installation Sub-contract. Therefore, in accordance with clause Z19.1, the Contractor deems these to be a Disallowed Cost. The list below provides non-exhaustive examples of costs which are deemed to be disallowable under the Installation Sub-contract:
• Installation Site labour resource utilised to rectify Defects under the Supply Sub-contract. This is substantiated in the Subcontractors daily site diaries, Subcontractors weekly report, Early Warning Notices raised by the Contractor and Defect Notices raised by both parties
• Installation Site labour and subsequent transportation required to return defective steelwork to the Subcontractors manufacturing facility. This is substantiated in the Subcontractors daily site diaries, concession requests and Quality records
• Requirement for a Site labour skill-mix which is heavily weighted towards skilled labour. This is substantiated in the Subcontractors daily site diaries which detail a large amount of skilled activities directly driven by the matters raised above
• Unproductive utilisation of installation labour for steelwork activities, which are directly driven by the matters raised above
• Unproductive utilization of installation labour for pipework handling and installation activities, which are directly driven by the matters raised above
In accordance with clause 14.3, the Contractor Instructs the following to the Subcontractor:
• The Subcontractor is to review and allocate their site labour resource to achieve levels and a skill mix which is considered productive and cost effective to the Contractor. In doing so, the Subcontractor shall mitigate further risk of incurring Disallowable Costs.
We do not have any hierarchy of documents and this Z Clause creates ambiguity with the main contract conditions stating defects are recoverable under the install contract. I believe a defect does not constitute a default or breach of contract.