Technically, contractor and subcontract agreements can be the same thing and, in quite a lot of cases, can be interchangeable. However, there are notable differences between contractor and subcontractor agreements, and understanding them is crucial to ensure that all parties involved in a project understand their roles, responsibilities, and liabilities.
Contractor vs Subcontractor Agreement
In construction, there is usually a chain of parties involved. At the top, you have the employer, who hires the main contractor under a contractor agreement. Below the main contractor, there may be subcontractors, and sometimes even sub-subcontractors, who handle specific parts of the project.
This works as a chain reaction between all the parties. Whilst contractors or main contractors are employed to take on the project’s entirety, they may not be able to do everything. This often occurs when they need specialists involved to undertake parts of the work because the contractor does not have the expertise, equipment, or resources. In this case, a subcontractor is appointed to undertake this select area of work.
Generally, a contractor agreement is typically made between the employer and the contractor they have chosen. It often includes responsibilities related to project management, design, and other duties specific to the main contractor. In construction, this can also mean taking responsibility for the Construction Design Management (CDM) regulations and the roles associated with them. As the main contractor, you are usually liable for the entire project.
Meanwhile, a subcontractor agreement is a lot more limited and will only specify that small part of the works they are undertaking. The ideal part of this is that they are not responsible for all persons on the project like the contractor is. Subcontractors are only responsible for their part of the project.
The Importance of Being Vigilant
Now that you understand the key differences between contractor and subcontractor agreements, it is crucial to be vigilant when signing such documents. Remember, these written agreements can impact not only your responsibilities but also your legal obligations and the overall success of the project.
Within a subcontractor agreement, you do have to be careful if you are proposed with one of these as they often try to pass down main contract liabilities to you. You will only be taking on a small part of the works out of a larger project. This means you should only be liable for the parts assigned to you.
For example, it might be that you are appointed for putting the roof on a housing estate that is being built. The entire housing estate is the contractor’s domain and might be for millions of pounds whilst your project is only for thousands of pounds. It would not be fair to introduce the same liabilities on you as it would be the main contractor at the rates that they are taking on.
Often, this is done in the way of things like LADs which are essentially late penalty clauses if you were to finish the works later than expected. It is typically the case that these might be highlighted at a specific figure per week and, out of the million-pound project, these seem reasonable. However, when they pass these directly down to you at the same rates, this is no longer fair. You should be taking these items on proportionally to the works that you are taking on for them.
Officially, under the privity of contract rules, you can only be bound by the contract you have entered and can only be sued by the persons involved in such. However, there are certain ways these can be introduced. Within your subcontractor agreement, they might reference the main contract as an appendix or other associated document. This means that it is incorporated into your contract and you must comply with it.
It might be the case that you are asked to sign a collateral warranty, which is an additional document that does not change your original contract but adds liability to a third party named in the warranty. This could be the employer or another individual. Even though you are not directly contracted with them, this agreement bypasses this and allows the third party to claim damages directly from you for any failures in your subcontract work.
If you require expert guidance on contractor and subcontractor agreements, or to clarify any concerns, speak to our team at BEB. You may reach us at 01604 217365 or info@bebconsultancy.co.uk.