What is subcontracting?
Subcontracting means entering into an agreement with another business to carry out specific work that is required under a contract that you have with your customer.
Subcontracting of services is often called outsourcing.
Subcontractors are usually hired because a project needs additional manpower or specialist expertise.
What problems might arise when subcontracting?
Under the contract between you and your customer (which is known as the main or head contract), it is your legal responsibility to produce the work as agreed. If you use subcontractor, he or she is not liable to your customer for his or her work.
This creates a potential problem for you. If the subcontractor fails to carry out the contract as agreed, or performs poorly, you are liable to make good his or her work to your customer.
Your customer might not want you to subcontract. He or she might have hired you on the basis that it is you that does the work. You might have experience or qualifications that merit the price you charge. If the work is in fact carried out by someone else, the benefit of hiring you might be lost.
How to protect your business
If you want to subcontract some of your work, the first thing you should do is check whether the head contract prohibits it. If there is no term that specifically prevents it, generally subcontracting will be allowed.
However, you should also be aware that if you were likely to have been awarded the contract based on your personal qualities or experience, for example because you completed another specific similar project, it may be reasonable for your customer to expect that you, and not somebody else, would be carrying out the work.
Your own terms with your subcontractor should either mirror your obligations or be more favourable to you than your terms with your customer. For example, you may need subcontractor to finish his or her work within a shorter timeframe so that you have enough time to check it and return to him or her if anything needs to be changed or improved.
You may want to make sure that the quality of the work produced by the subcontractor is higher than standard required from you by your customer. If the main contract makes you liable for a certain amount of damages, then your subcontractor should be liable for at least the same amount.
Because it is you, the main contractor, who remains liable for the performance of the main contract, you should require to be indemnified by the subcontractor his or her failures to perform his or her work. That way, if you are sued for non-performance, you can in turn sue subcontractor. Of course, you should also make it a term that the subcontractor carries adequate insurance to pay out on the indemnity.
If you are the end-customer
If you are hiring someone who you think might subcontract some of the work, and you are concerned about the quality of the work that the subcontractor might do, then you have two options.
The first is to forbid subcontracting completely in the contract. However, if something goes wrong for your contractor, such as a key member of staff leaving employment, you might leave him or her in a situation where the job can't be performed to the contractual terms.
The second is to allow subcontracting or outsourcing, but insist that you have the right to be told which parts of the work will be carried out by someone else, the right to veto the appointment of a subcontractor, and the right to see and control the terms of the contract. Through these rights, you can remain in control to whatever degree you like.
If you trust the contractor, you might not exercise your rights, but nonetheless, they exist if you need them.