I’m a Contractor. Do I Need a Contract to Engage Subcontractors?

You may choose to engage a subcontractor when you don’t have the human resources or skills to complete work that you have been contracted to perform. When doing so, it is crucial to have a written subcontractor agreement in place that mirrors your obligations under the existing agreement with your client. This is because you want to be clear about whose responsibility it is to rectify any issues that may arise from the subcontractor’s work. This article will highlight why it’s essential that you have a subcontractor agreement and common clauses that will help minimise your responsibility for subcontractors’ work.

When to Subcontract

Businesses will engage contractors for a range of specialised services, such as: 

• building; 
• catering; 
• IT maintenance; and 
• marketing. 

Due to the complexity of this work, some contractors will choose to further contract out work to more specialised providers. This is known as subcontracting. Deciding whether to subcontract work will depend on several factors, prominently whether you have the:

• human resources to complete the work; and
• necessary skills required to perform the job.

Your Responsibility

You will first need to ensure that you have the right to subcontract the work. This should be clearly outlined under your existing contractor agreement with the client. If you are allowed to subcontract the job, you will generally be held responsible for any: 

• defects in the subcontractors’ performance; or 
• other violations of your contractor agreement. 

You have engaged them to act on your behalf, so you will be held accountable for their actions.

However, you can negotiate with subcontractors to ensure that you are not held accountable for their work. You can achieve this by making the subcontractor responsible to the client for their own functions. Therefore, your contract can make the subcontractor responsible for:

• maintaining the project design;
• completing their part of the project by a specified date; and
• the quality and standard of their work.

You should also pass down certain rights to subcontractors, including:

• entitlements for extension of time to complete the work; and
• being bound where some variation of the work is needed.

Other Common Subcontractor Agreement Clauses

A subcontractor agreement will usually include provisions that outline:

• the scope of the services they will be providing; 
• their responsibilities to complete the work to a high standard within a set period;
• restraint or non-compete obligations that prevent them from directly engaging with your clients or competing with your business; 
• how and when you will pay them; 
• intellectual property and confidentiality concerns, including the rights over any materials or processes that each party owns;
• the circumstances in which either party may choose to terminate the contract; 
• who will be responsible for providing and maintaining the equipment used by the subcontractor;
• any insurance obligations; and
• whether the work can be further subcontracted.

Disputes

Disputes may arise where: 

• there is a defect in the work; 
• there is a delay in performance; or 
• other issues arise from their work.

A dispute resolution clause should clearly outline what happens if there is a dispute, between either: 

• your subcontractor and your client; or 
• you and your subcontractor.

This process should be consistent between both your contractor and subcontractor agreements so that the process is the same between all parties. 

You may also consider whether to require your subcontractors to participate in any dispute resolution process between you and the client. Additionally, the clause may include a requirement to participate in arbitration or mediation, where an independent third party will oversee resolution negotiations, before taking the matter further. 

Key Takeaways

A subcontractor agreement can assist in preventing misunderstandings and disputes if an issue arises due to your subcontractor’s work. An agreement with your subcontractors must reflect your existing agreement with the client, so that both parties clearly understand their obligations and the extent of their legal responsibility. You should have it correctly prepared and signed before engaging your subcontractor. If you are looking for assistance preparing a subcontractor agreement, contact LegalVision’s contract lawyers on 1300 544 755 or fill out the form on this page.