What is a subcontract?
Often, a main service provider outsources to other persons/companies specific portions of the work that the main service provider agreed to provide under a main contract. The agreement between the main contractor and the persons/companies to which it is outsourcing is called a 'subcontract' and the process is known as 'subcontracting'.
Why subcontract?
Main contractors generally subcontract because they require additional resources for a big job or require specialist expertise.
Make sure that subcontracting is permissible under the main contract
Sometimes the main contract will prohibit subcontracting or require notice and approval to do so. You must check those provisions before entering into a subcontract. If the contract is silent on the permissibility of subcontracting, generally subcontracting is deemed allowed. However, be mindful of the particular obligations on you, the main contractor. If they are of a personal nature or it can be shown that the main contractor was chosen for specific competency or qualifications, then subcontracting is unlikely to be allowed.
Mirror the terms of the main contract
In order to ensure that the main contractor does not violate the terms of the main contract and that there are no gaps in performance and deliverables, it is imperative that the Subcontracting agreement mirrors the terms of the main contract. This is especially true for time frames and liability.
For example, if the main contract requires a deliverable within 30 days, you must ensure that the subcontract timeline is the same or even shorter to allow for review. The same is true for liability – if the main contractor can be liable for a certain amount of damages then the subcontractor should have the same thresholds and caps.
Get indemnified by the subcontractor
The main contractor remains responsible for performance under the main contract. So, if the subcontractor fails to perform or performs poorly, the main contractor remains liable to the other party to the main contract for that.
Therefore, it is very important for the main contractor to be indemnified by the subcontractor for such failures. This way, the main contractor can protest its interests with regard to any liability it will have under the main contract in such instances. There should be a complimentary requirement of adequate insurance to cover any payouts on the indemnity.
