When working on a project with clients, you may find that you need to also work with other businesses to complete the project. These other businesses will be known as subcontractors. If your client has provided you with a contract, you will need a subcontract to engage others. This article will explore your options regarding: 

  • having a subcontract prepared; and
  • handling issues with your client and subcontractor. 

My Client Has Given Me a Contract, What Should I Do?

1. Review It

The first step when receiving a contract is to review it. It is crucial that you understand what your rights and obligations are under the contract. You will also need to know how you will manage your relationship with your client.

Ideally, you should also have your lawyer review the contract before you sign it. You may want to propose amendments to the contract to protect your business’ interests.

2. Check if You Can Engage a Subcontractor

You will need to engage a subcontractor in a number of different circumstances. 

For example, if you are fitting out an office for your client, you may need to engage an electrician to handle wiring works. Here, the electrician will be your subcontractor.

If you anticipate needing to hire a subcontractor, you will first need to ensure that you can do so under the contract.

Search for any clauses expressly dealing with subcontracting.

The contract may, for instance, say that you:

  • cannot subcontract any part of the works;
  • can subcontract any part of the works; or
  • can only subcontract any part of the works with the client’s prior written approval.

If your client allows you to subcontract, it will be useful to provide this contract to your subcontractor, so they are aware of their obligations. First, however, you will need to check the confidentiality provisions in the contract to ensure that you can provide this contract to the subcontractor. Alternatively, you may need to obtain your client’s consent before providing the head contract to your subcontractor.

3. Obtain Approval

If the contract states that you need your client’s approval before engaging a subcontractor, it is crucial that you do this. You must complete this before having a subcontract prepared and hiring a subcontractor.  

What Do I Need to Engage a Subcontractor?

To engage a subcontractor, you will need a subcontract. However, there are many options which you will need to consider when preparing a subcontract. Generally, the options are using a:

  1. ‘back to back’ subcontract;
  2. pass through subcontract;
  3. general subcontract attaching a copy of the head contract; or
  4. general subcontract which does not mention the head contract.

1. Back to Back Subcontract

back to back subcontract will essentially mirror the head contract. 

Using this should always be considered on a case by case basis. However, you should only opt for this option if the scope of work that you are subcontracting is a substantial portion of the work under the head contract. 

ProsCons

This option will provide a lot of protection to you against your subcontractor.

This option may not be commercially viable.

For example, your subcontractor may consider it to be unreasonable that they are agreeing to all risks associated with a project when they are only working on a small parcel of work.

If you face any issues from your client as a result of your subcontractor’s actions, you will likely be able to rely on the subcontract to make a claim against your subcontractor.

It may be challenging to negotiate the subcontract with your subcontractor.

 

2. Pass-Through Subcontract

A pass-through subcontract is where a lawyer reviews the head contract, and a subcontract is drafted based on the review. Here, all of your obligations that need to be passed down to your subcontractor are inserted into the subcontract.

For example, if the head contract contains a clause stating:

“The Head Contractor must ensure each subcontractor complies with the Client’s Work Health and Safety Policy.”

In a pass-through contract, the clause would be ‘passed through’ by including the following clause:

“The Subcontractor agrees to comply with the Client’s Work Health and Safety Policy.” 

This type of contract will be the best option if the head contract confidentiality provisions prevent you from providing the head contract to the subcontractor.

ProsCons

This is the most comprehensive way of ensuring you are protected from ‘gap risk’ when engaging a subcontractor. 

Gap risk is where you face a risk in your head contract which is not passed through in your subcontract. Here, you could face a claim from your client due to the fault of your subcontractor, and you will not be able to bring a claim against your subcontractor.

Having a lawyer prepare this type of subcontract is likely to be expensive.

A pass-through subcontract will generally be easier to negotiate with your subcontractor. This is because you will be able to justify why specific provisions have been included in the subcontract.

If the part of the works that you are subcontracting is low risk and low value, this option may not be preferable.

 

3. General Subcontract Attaching a Copy of the Head Contract

Here, a lawyer will draft a subcontract in a general nature. 

For example, it could be used on a number of different projects or to engage a number of different subcontractors. 

You will then simply need to attach a copy of the head contract to the subcontract. Here, the subcontractor will face a broad obligation to comply with the head contract.

This option will be beneficial if you are engaging the subcontractor to complete work which is low risk and low value. You will only be able to use this option when your client allows you to provide a copy to the subcontractor.

ProsCons

This is generally cheaper than the previous two options.

A general obligation on your subcontractor to comply with the head contract in full may not be as enforceable as a specific provision in the subcontractor that your subcontractor must comply with. 

You can use this option more than once.

 

 

4. General Subcontract Which Does Not Mention the Head Contract

This is where a subcontract makes no reference to the head contract. Your subcontractor will not have a copy of the head contract and does not need to comply with the head contract.

You should only use this option when: 

  • the work your subcontractor is completing is low risk;
  • the work your subcontractor is completing is low value; and
  • you are not allowed to provide a copy of the head contract to your subcontractor.
ProsCons

This is a cheap option.

This option has the potential to expose you to gap risk. 

It can be used more than once – the head contract will need to be updated each time.

It is the weakest form of legal protection. 

 

Key Takeaways

If you need work completed for a client that you cannot complete yourself, you may need to engage a subcontractor. Here, it is crucial to have a subcontract prepared to outline your business relationship and minimise any legal risks. The key steps in having a subcontract prepared are:

  1. reviewing the contract from your client;
  2. obtaining any approvals from your client, if necessary;
  3. choosing the ideal form of subcontract; and
  4. having your lawyer prepare your subcontract.

If you have any questions about having a subcontract prepared, contact LegalVision’s contract lawyers on 1300 544 755 or fill out the form on this page. 

About LegalVision: LegalVision is a tech-driven, full-service commercial law firm that uses technology to deliver a faster, better quality and more cost-effective client experience.
Robert Nay

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