Final answer:
Typically, the main contractor is responsible for cost overruns by a subcontractor, as they are usually required to manage the project's budget and subcontractors. The main contractor has to absorb extra costs or negotiate with the funding source or the subcontractor. Certain contract clauses can shift risk, but this is not common.
Step-by-step explanation:
When discussing who is held responsible by the funding source in the event of a cost overrun by a subcontractor, it is typically the main contractor, or the primary obligor, who is accountable for managing subcontractors and ensuring the terms of the contract are adhered to, including budget constraints. In most contracts, the main contractor has the liability for cost overruns, unless a different arrangement has been explicitly agreed upon in the subcontracting agreement. The agreement between the main contractor and the funding source normally includes provisions covering the management of subcontractors and any associated financial risks.Funding sources, such as banks, government bodies, or private investors, usually require the main contractor to take full responsibility for project management, including overseeing the work and finances of their subcontractors. If the subcontractor exceeds their budget, the main contractor must either absorb the extra costs or negotiate with the funding source or the subcontractor to address the overrun.However, if the funding agreement or contract has a clause that shifts the financial risk to the funding source or allows for certain contingencies, then the funding source may be liable for additional costs. Nevertheless, such situations are quite rare and often, the burden of managing risk, including cost overruns, falls on the main contractor, making it essential for them to have robust risk management practices in place.\