In this blog, we thought we’d focus on 9 reasons you may wish to have a sub-contractor agreement drafted – and they might be ones you wouldn’t have thought of!
We can add clauses around non-solicitation and non-competition, meaning that your client can’t steal your clients and work for them directly, or perhaps limit their trade. What we can’t do is stop them making a living entirely, which is a fine balance which needs to be considered when drafting the clause. Often in construction even small companies need to be VAT registered due to the value of materials that count toward your turnover; however, if your subcontractor is a sole trader and doesn’t do so much they may not need to charge this to clients meaning they are 20% cheaper immediately.
You can ensure you only have to pay out when you are paid by your client. This helps keep money in your bank account and will save you overdraft or factoring fees if your client’s payment terms are a lot longer than you hoped. If you will be paid within 30 days, make your subcontractor’s terms 45 days (allowing for a little lateness). Please note it is now illegal to have pay when paid clauses within your contracts, but use the above method instead.
Lower insurance premium
If your insurance quote is really high this year, have a deep dive in there and see if you are paying to cover your subcontractors needlessly. You don’t need to cover them on yours, however you also don’t want to be left in the lurch should there be an issue, so make sure your agreement lists exactly what you need them to have and at what level.
Pass the buck
Not everything has to be your fault. You can pass on liability for things that they do wrong and ensure that they either are responsible for fixing it at their own cost or paying for any charges you incur for fixing it. You can also make these agreements mirror your client agreements so anything that you are responsible for under your contract they are also responsible for too – this even includes things like penalties and damages for lateness or failures.
Avoid HMRC investigations
How much of a pain do you think it is when HMRC decide to do a full investigation of your business and its processes? You could be snowed under showing them your paperwork and answering their questions for weeks! We can’t necessarily say that you won’t be investigated but if they do come after you under IR35 tax law, you will be able to easily fend them off by showing them your compliant subcontractor agreement – provided your working practices match these.
Protect your tools
It depends what your subcontractors are able to, but where you can make it clear in the agreement they are required to bring their own tools and equipment and ensure that they are up to the job. If they are to use yours then your agreement should make it clear they have to look after them and return them in suitable condition, you can even make specific requests for certain items.
You save time
You likely involved a subcontractor either because you didn’t have the time or experience to do the works yourself, however the last thing that you want is for you to spend more time managing them than it would to do the work. You can add clauses in the agreement which say it is their responsibility to contact the client and make arrangements, make it clear that they are responsible for how and in what order the work is carried out, and you can add in your ideal timescales too to ensure that your standards are upheld.
Whether it is on site you want things to be kept clean and tidy or if it is more of an administrative habit, you can ensure that everything is kept up to date and where it should be by the subcontractor rather than spending time chasing up, managing and clearing/tidying things up yourself.
Get rid of people when you want
Unlike employment where people have certain rights, you can put whatever you want in a subcontractor agreement in terms of cancelling, you might want the right to do it if your client terminates the agreement, if they do something wrong, if you have more capacity to do the works or even if you find someone else that you prefer. Your agreement should give you a short if any notice period that you have to give your subcontractor – and it doesn’t have to be reciprocal, be as harsh as you want with their notice periods, or even don’t allow them to until they finish the project they are on, or someone they instruct does.
If you have any contract or legal queries contact us on 01604 217365 or email firstname.lastname@example.org