16.8.1 The Authority often has the perception that it must retain a large degree of control of a subjective nature over Sub-Contractors. This perceived need for control applies both to the performance of the Sub-Contractors and to any procedure for appointing replacement Sub-Contractors. The Contractor's stated view is often that as it originally selected these Sub-Contractors and has taken risk on their performance, it should be entitled to change them at will (for example, if they are not performing) whilst recognising the legitimate interest of the Authority in the identity of key sub-contractors (as provided for in Section 16.8.5).243
16.8.2 In general, attempts by the Authority to control Sub-Contractors are to be discouraged as it is in most cases unnecessary and may dilute the level of risk transfer achievable by the Authority (see also Section 9.4 (Monitoring of Sub-Contractors)). The Authority should in any event (if control is needed) generally only seek a degree of control in relation to Sub-Contractors and not in relation to sub-contractors of Sub-Contractors, though the ability to engage directly with the service provider on-site may also be needed (see further Section 13.5.3).
16.8.3 In certain limited cases, there may be overriding reasons why the Authority should have a degree of control over sub-contractors. For example, there may be national security issues (particularly in some defence projects), other public interest issues (e.g. regarding who should be allowed to be involved in schools), or the Authority may have a statutory duty that it needs to carry out.
16.8.4 In such cases, the criteria that a replacement sub-contractor must satisfy should be reasonable (for example, they should require that the potential sub-contractor is not a threat to national security or other relevant aspect of the public interest). Any judgment that the potential sub-contractor does not satisfy the criteria should be based on objective evidence. For example, a judgment that employment of a certain sub-contractor would represent a threat to national security or the public interest should be made on the basis of concrete information received from a relevant legal, financial or other authority demonstrating that the national interests would be detrimentally affected. In the majority of cases, criteria of this nature will not be needed.
16.8.5 In cases in which there is no specific reason to control sub-contractors, the Authority may still want some control on the basis that it placed reliance on the original sub- contractor's identity and ability to perform in awarding the Contract to the Contractor. In such cases, satisfaction of a limited set of objective criteria should prove an acceptable level of control to the Authority and the Contractor. Any such criteria should include:
• technical ability and competence; and
• financial strength (including any willingness to give guarantees to the Contractor).
16.8.6 If in the circumstances described the Authority retains some control over replacement Sub-Contractors or sub-contractors of Sub-Contractors, these controls will also apply to any substitute Sub-Contractors or sub-contractors whom the financiers wish to appoint in accordance with their rights under the Direct Agreement (see Section 31 (Direct Agreement and Senior Lenders)).
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243 Controls over the performance and identity of Sub-Contractors will be expected by Senior Lenders. These controls will be set out in the Senior Financing Agreements.