Subcontractor Agreements

You may find that you need to engage a subcontractor when you do not have the skills or resources to attend to works that you have been contracted to complete. This is now a crucial time for you to ensure that you have a written subcontractor agreement in place. A subcontractor agreement is important for the following reasons:

1. To maintain a healthy working relationship amongst all parties;
2. To ensure a mutual agreement on the scope of work and all parties are clear on their respective roles or responsibilities;
3. To minimise risks or misunderstandings and prevent disputes arising between your client and the subcontractors;
4. The subcontractors are aware of their service expectations of your clients;
5. To mirror your contracted obligations under the existing agreement with your client.

When Should I subcontract?

Many businesses hire contractors for various specialised services such as building, catering, IT maintenance and marketing. Depending on the complexity of these works, many contractors will choose to hire additional specific specialists to complete part or all of the services they have been contracted to perform. This is commonly known as subcontracting.

When deciding to subcontract work, there are several factors that you need to consider:

1. Whether you have the right to subcontract;
2. Whether you have the resources to complete the works yourself; and
3. Whether you have the required skills to complete the works yourself.

What is a Subcontractor Agreement?

A subcontractor agreement will detail a specific scope of works that the subcontractor is are liable for and the timeframe in which they have to complete the works. The agreement should be put in place to outline exactly which works are being subcontracted and even what work is excluded.

What goes into a subcontractor agreement will vary depending on the industry. However, a subcontractor agreement will usually include provisions that address the following:

• Scope of services and responsibilities;
• Standard and quality required for the completion of the works;
• Restraint obligations to avoid competing with your business or contracting your client directly;
• Clear payment and late payment provisions;
• Who is responsible on supplying or maintaining the work equipment;
• Further subcontracting restrictions;
• Term of agreement and termination arrangement;
• Intellectual property and confidentiality agreements to ensure designs or processes are adequately protected;
• Dispute resolution clauses;
• Extension of time entitlements;
• Insurance obligations.

Disputes that may arise

Keep in mind that as a contractor, it is likely that you are to be made accountable for the subcontractors’ actions and are responsible for any defects or breaches that they may make.

When thinking about your subcontractor agreement, you should consider the following disputes that may arise and incorporate a clearly outlined dispute resolution clause into the subcontractor agreement:

• Responsibility for defective works;
• Responsibility for any delays in work;
• Specific payment dates;
• Any breaches or avoidance of contractual obligations.
• Dispute mediation;
• Third party resolution.

You should ensure that your contract with your client and your subcontractor agreement are aligned and mirror each other so that all processes and obligations are smooth and will ultimately avoid or protect you from any disputes down the track.

The Risk of Verbal Agreements

Many contractors often choose the easy way out and forego the need to have a written subcontractor agreement. Yes, everyone is more receptive to a flexible working arrangement but a shake of hands is evidently different from a written agreement and this is where disputes can arise. Verbal agreements are non-binding and meaningless when it comes to the performance of your contracted obligations. Our advice is always to insist on a proper written subcontractor agreement to set out the agreed terms clearly.