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What is a subcontractor agreement?

A Subcontractor Agreement is a contract used to set out the terms of an agreement between one independent contractor who hires another independent contractor (known as the subcontractor). In other words, if a contractor is hired to complete a task and they hire another person (a subcontractor) to assist them in a specific part of a task, then a Subcontractor Agreement will be used to specify the terms under which the subcontractor will perform the task for the contractor.

An example of a subcontractor relationship

For example, a government department may enter into a contract with a large company for the large company to provide maintenance services at all of the government department’s business sites. The large company may subcontract the maintenance of each site to a subcontractor. This way the maintenance services are actually being provided by the subcontractor, and the large company makes a profit by charging the government department more than it had to pay the subcontractor for the maintenance services.

Subcontractors can be an individual, a business or an organisation.

What should be in a subcontractor agreement?

The Subcontractor Agreement between a contractor and a subcontractor will cover many aspects of the agreement, including, but not limited to: specifying the obligations of the subcontractor; specifying the payment details for the subcontractor; specifying the required performance of the subcontractor; specifying the termination of the agreement; and guidelines for approaching and resolving disputes.

The service being provided by the subcontractor may be for a one-time service or for an on-going service.

A contractor may choose to enter into a Subcontractor Agreement with a subcontractor if they are engaging project and require specialist skills or input that is not needed on a long-term basis. Subcontractors can work as a flexible tool to help complete a specific task or result.

Subcontractors are not employees

Now, a very important note – a subcontractor is different to an employee. Subcontractors represent their own business and are not a part of the business of the contractor; subcontractors are not limited to only providing work for one person; and subcontractors choose the way they will fulfill their designated tasks.

Sometimes the line can be a bit blurred when it comes to distinguishing an employee and a subcontractor. However – it is critically important for this distinction to be assessed because there are different obligations for the contractor if the subcontractor was in fact found to be an employee (such as payment of superannuation contributions). The rights and legal liabilities of a subcontractor are also different from those of an employee.

Can a subcontractor use a sub-subcontractor?

I have entered into a subcontractor agreement with a head contractor. Can I sub-subcontract out some of my services to a sub- subcontractor? Generally ‘yes’, you can sub-subcontract out work to a third person – unless your subcontractor agreement prohibits this. So you need to make sure you put in place a subcontractor agreement that is right for the circumstances!

We have worked on a some complex subcontracts, in fact our largest contract, worth $236.4m was a subcontract to the Department of Defence and Telstra… let me sum that up by saying…’fun and games’! Took nine months to negotiate that contract. It is our paper baby!

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