Understanding the importance of sub-contractor agreements is key to avoiding costly mistakes and keeping projects on track. These written agreements serve as a foundation for successful collaboration and risk management in any project.
Why Having a Sub-contractor Agreement Is Vital
Subcontracting is the practice of assigning or outsourcing part of your obligations under a contract to another party known as a sub-contractor.
With that in mind, are you a business who regularly hires sub-contractors to assist you with completing projects? It may be that your business needs additional resources to carry out specific or specialist tasks. Rather than employing someone, you may want to instruct a sub-contractor or freelancer to do this.
Working this way without an agreement between you and your sub-contractor can end up costing you in the long run. A well-defined contract between you and your sub-contractor is important. It should outline the scope of work and what is expected, the payment terms and whether there are any deadlines, and other relevant details specific to your industry to avoid misunderstandings.
What to Include in a Sub-Contractor Agreement
For the purposes of this blog, we are going to assume that any freelancer or sub-contractor falls outside the scope of IR35 and they are in fact a subbie and not a disguised employee.
Below are some of the areas that need to be covered off in an agreement and the problems that can arise in the absence of doing so:
1. Name and address
Seems obvious but it needs to be clear. Is it an individual or is it a business? If it is a limited company, include the registration number and registered office address. If your sub-contractor is an individual, include their home address. Failure to be in contract with the wrong person or company could mean the whole contract is not enforceable anyway.
2. Service provisions
Where will the sub-contractor provide services? Are there any service levels agreed between the parties? If there is a change in the scope, what is the expectation in response times? It is important here to back-to-back any expectations you have with your client or the main contractor. Otherwise, you could find yourself in breach of contract for not adhering to the terms you have agreed with the other party.
3. Fees and payment
This will vary depending on how you are paying your sub-contractor. Your agreement should make it clear whether it is on a project or time basis. Will you require a clear indication of how much time has been spent to ensure you pay them correctly or will they be paid once the job is done? Does your sub-contractor require staged payments for bigger jobs? How many days will you pay your invoices on? Do the fees include VAT? Are expenses paid and how will they be decided?
Disgruntled sub-contractors who are not paid when they expect is a huge reason for them to cease work, which could land you in a heap of trouble when working with tight deadlines. Lay out your payment provisions clear to rule out any misunderstandings.
4. Liability
Do you know what insurance they hold? Are both parties clear on the various rules for when either are liable (legally responsible) for certain situations? Remember, any issues with their works falls on you should your contracting party have problems.
If you have a rectification period, ensure your sub-contractors are clear that they are also bound by this and at their own cost. If they didn’t know or claim they didn’t know, they would want to invoice you for any extra works even if it does full under any other agreement you have or warranties in place. This would all come out of your pocket.
Any insurance held must be sufficient to indemnify (cover) costs they may have to pay if they are liable to pay another party compensation following legal claims in connection with your contract. Furthermore, you can ensure here that you are not liable for their loss of profit if you have to terminate the project early due to no fault of your own.
5. Data protection and other policies
This is good housekeeping and should be standard practice within your business. You may be passing on personal details to your sub-contractor and it is your job to ensure you have made it clear what their obligations are when processing that data. Depending on your industry, you may be bound by anti-bribery, modern slavery, anti-money laundering, and health & safety policies. Does your sub-contractor have their own or do you need to ensure they agree to yours or your clients?
6. Termination and consequences of termination
Have you considered when the contract ends? Does it expire naturally once the project has been completed or is it on going? Ensure here that they can’t just cancel and walk away mid-project. Include any notice periods you expect and, should you terminate, make sure you are protecting your clients and suppliers by setting standards and preventing them from working with them directly.
What is written here is just the tip of the iceberg when considering your relationship between you and your sub-contractors. Understanding the importance of sub-contractor agreements and ensuring both parties know what the relationship is by legal definition are crucial to protecting your business when choosing to work with sub-contractors and freelancers.
Next Steps?
If you need any more help with drafting a sub-contractor agreement, speak to us at BEB. We are contract law specialists based in Northampton. We draft bespoke and well-written business contracts on a fixed price basis. Our legal packages offer flexibility depending on the number of documents you need. Whether you require a business to consumer or business to business contract, we are here to help!
We are contract drafting and contract review providers. We can advise and negotiate all contracts to protect you from unfair terms and conditions, as well as support you with any ongoing contractual issues. We would be like your very own comprehensive in-house legal department.
We also offer debt recovery services, relieving you from chasing late payments and improving your cash flow
If you need any of these legal and contract services get in touch with us today at 01604 217365 or info@bebconsultancy.co.uk
Free Resources
Small Business Owners Guide to Contracts
The Construction Review Checklist