FIDIC demystified. The bigger the contract, the greater the responsibility. How can you prepare for the role of main contractor?

For many construction firms, taking on the role of main contractor is a natural stage in their development. After years of carrying out work as a subcontractor, they develop the ambition to manage projects independently, build their own brand and achieve higher profit margins.

From a business perspective, such a move seems logical. The company has an experienced team, the necessary equipment and a track record of successful projects. The problem, however, is that the transition from being a subcontractor to a main contractor involves much more than simply scaling up operations. Experience in providing legal services to entities in the construction sector shows that, above all, it means taking on a completely new area of responsibility.

It is not only the scope of the work that is changing, but above all the scope of the risk.

A subcontractor is usually responsible for a specific part of a project. Their task is to carry out the work entrusted to them in accordance with the contract and the schedule.

The main contractor, however, becomes the party responsible for the success of the entire project.

He is responsible to the investor for:

• the timely completion of the project,
• coordination of all parties involved in the construction process,
• the quality of the work carried out,
• settlement of changes to the scope of work,
• claims and contractual risk management.

In practice, this means that even problems caused by other parties involved in the process often end up on the main contractor’s desk.

Many companies undertaking their first contracts as main contractors assume that their existing technical experience will be sufficient to ensure success.

Meanwhile, the greatest challenges very often do not relate to the construction process itself. They arise in areas such as:

• document management,
• reporting on the progress of work,
• communication with the investor,
• ensuring that subcontractors fulfil their obligations,
• documenting changes and claims,
• monitoring of contract deadlines.

Contracts based on FIDIC model contracts pose an even greater challenge – at least the first time round – for subcontractors. Such contracts employ specific provisions, such as notice of claim, sub-clauses entitling the contractor to additional costs and time for completion, or instructions to vary the works. In many cases, it is precisely these elements that become the source of subsequent disputes.

Disputes look different now than they did before.

As a subcontractor, a contractor usually has to fight to get paid or pursue claims relating to additional work. Once they take on the role of main contractor, the situation changes completely.

The company is operating on two fronts simultaneously. On the one hand, it must report to the investor; on the other, it must manage its own subcontractors.

Consequently, issues arise such as contractual penalties for delays, liability for subcontractors’ errors, claims relating to disruptions to the schedule, and problems with partial and final acceptance. It is at this point that it becomes clear that effective contract management is just as important as effective construction management.

What should you do to prepare before your first major contract?

Companies that successfully transition into the role of main contractor usually invest not only in operational development but also in the development of internal processes.

The following are of key importance:

• clear procedures for the flow of information,
• standards for documenting incidents on a building site,
• appropriately drafted model contracts,
• procedures for submitting claims and changes to the scope of work,
• ongoing analysis of contractual risks.

The cost of implementing such solutions is usually incomparably lower than the cost of a subsequent dispute lasting several years.

Success begins before the contract is signed.

The transition from being a subcontractor to becoming a main contractor can be one of the most important steps in the development of a construction company. It is worth bearing in mind, however, that the success of this transition rarely depends solely on technical expertise.

Increasingly, the success of an investment is determined by risk management skills, the quality of internal processes and the ability to manage a contract efficiently.

Because although the construction work takes place on site, many disputes begin much earlier – during contract negotiations, the documentation of events and the day-to-day decision-making process.