EM Law | Commercial Lawyers in Central London
A subcontract is a separate contract entered into by a party (main contractor) to a contract (main contract) under which they agree with another person (the subcontractor) that the subcontractor will perform their obligations under the main contract in return for consideration of some kind.
In general, the other party to the main contract is obliged to accept the subcontractor’s performance if the subcontractor fulfils all that the main contractor had agreed to do under the main contract.
Subcontracts can therefore be an effective way of delegating contractual obligations to a third party.
The main contractor remains liable for the performance of the main contract, with the result that it is liable to the other party to the main contract for any default in performance by the subcontractor. Equally, the other contracting party is not generally entitled to sue the subcontractor for breach of contract unless they have a claim in tort or a direct third party right.
When are subcontracts used?
Subcontracts are commonly used in a number of sectors including construction, transportation, manufacturing and information technology. In these situations, the main contractor agrees to carry out certain works for a customer. It then elects to use subcontractors to carry out some or all of those works under separate subcontracts.
The main contractor may view the subcontractor as an essential member of the project team, and work very collaboratively with it. If the work being subcontracted is less critical to the main contract, the main contractor and sub-contractor may have a more arms-length relationship. The relationship between the main contractor and the subcontractor is normally reflected in the structure and terms of the subcontract.
Liability of a subcontractor in relation to the main contract
Generally, a subcontract is a separate contract that does not affect the position of the parties to the main contract, as there is no privity of contract between the subcontractor and the other party to the main contract.
In industries where subcontracts are particularly common, such as construction, the parties to the main contract will make express provision to ensure that the customer acquires directly enforceable rights against subcontractors, typically by means of collateral warranties and express third party rights.
Different types of subcontracts
Essentially, there are two different types of subcontracts:
- The back-to-back agreement. The expression “back-to-back agreement” is normally used when the rights and duties of the subcontractor in relation to the main contractor closely mirror those of the main contractor in relation to the customer under the main contract. This is often achieved by incorporating by reference into the back-to-back agreement all the terms of the main contract except for those parts of the main contract that are expressly excluded or varied (the most obvious being the clauses relating to price).
- The “stand-alone” subcontract. This is a subcontract that can be read and understood without reference to the main contract. The clauses in this sort of subcontract might have little in common with those in the main contract. For example, a subcontractor might be a subcontractor in the sense that they are specifically approved by the ultimate customer, but in other situations the relationship might be more arms’ length: the main contractor might buy the subcontractor’s products for use in relation to the main contract, but the purchase will be on the subcontractor’s or the main contractor’s standard terms.
Key terms for flow-down in subcontracts
The most common contract provisions that customers look to be flowed down are:
- Third party rights allowing the customer to enforce the terms of the contract.
- Conditions relating to access to customer sites.
- Employee screening.
- The areas of information security, data protection and confidentiality.
- Compliance with the customer’s corporate policies, for example, corporate social responsibility, modern slavery.
For any questions our subcontracts solicitor Neil Williamson can help you.