10 Mar 2025
What is a Subcontractor Agreement and Are They Needed?
Here at Contractwise, we’ve spent many years assisting professionals in the construction industry with all of their Construction Industry Scheme, CIS, needs.
In this time, we’ve seen all kinds of disputes arise and sometimes a subcontractor agreement may be necessary.
In the construction industry, clear agreements between contractors and subcontractors are essential to ensure projects run smoothly and that all parties understand their responsibilities. A subcontractor agreement is a crucial document that can ensure this is the case. But what is a subcontractor agreement? And is it necessary?
In this article, the team here at Contractwise will outline what a subcontractor agreement is, and its benefits and provide you with a comprehensive guide on what one should include.
Read on for more…
What is a subcontractor agreement?
A subcontractor agreement is a legally binding contract between the contractor and subcontractor. The primary purpose of these agreements is to outline the specific construction tasks and jobs that the subcontractor has been hired to perform. This agreement clearly defines the scope of the work, responsibilities, timelines, payment terms and other critical aspects of the working relationship between the two parties. This is to help everyone know where they stand and formally state what they are and are not responsible for during the project.
Not only do these agreements ensure that both the contractor and subcontractor have a clear understanding of their obligations, but they also reduce the potential for disputes and misunderstandings.
What needs to be in a subcontractor agreement?
A well-drafted subcontractor agreement will be comprehensive and include the following key elements:
Scope of work
Clearly defining the tasks and responsibilities of the subcontractor is paramount and probably the most important part of any agreement. This section should detail all the specific details that need to be provided, including if the subcontractor is required to provide materials and equipment. By including a precise scope of work, this ensures both parties have clear expectations regarding who is responsible for what.
Payment terms
This section is also very important and outlines the agreed-upon payment information for the subcontractor’s services. This will usually include the payment schedule, method of payment and any other payment conditions. This is essential and it can also be as granular as explaining whether payments will be made upon the completion of milestones, on a monthly basis, at the end of the project or any other arrangement.
Duration and deadlines
Establishing a timeframe for the subcontractor’s work, including start and completion dates, ensures the project stays on schedule and everyone is aware of the timeframes. This section can also include milestones and the consequences of any delays, such as liquidated damages or penalties.
Termination clause
A provision for terminating the agreement should also be included. This will outline the circumstances in which either party can terminate the agreement and the required notice period.
Right to substitution
Including a right-to-substitution clause will outline circumstances when the subcontractor will be allowed to send replacement workers in their place (as long as they are of the same quality and expertise).
Dispute resolution
Outlining the process for resolving disputes, such as mediation or arbitration, can provide both parties with a clear way to amicably solve disputes without having to resort to legal action.
When is a subcontractor agreement needed?
A subcontractor agreement is needed whenever a contractor has engaged a subcontractor to perform specific tasks or services as part of a larger construction project.
While an agreement is not mandatory, it is recommended and some examples of when an agreement may be needed include:
Specialised work: When specific expertise or skills are required that the primary contractor does not possess.
Project scaling: To manage larger projects efficiently by dividing work among specialised subcontractors.
Resource constraints: When the primary contractor lacks the workforce or resources to complete certain aspects of the project within the desired timeframe.
Having a formal agreement in place ensures that all parties understand their roles and responsibilities, which is vital for the successful execution of the project.
Do I have the right to be paid without a subcontractor agreement?
Even if you do not have a subcontractor agreement in place, you are still entitled to payment after work has been completed. However, it can be more challenging to enforce. While verbal agreements and implied contracts may have worked for you in the past, if disputes arise there is no formal proof of the scope of work, the payment terms and other critical aspects of the job. Without clear documentation, resolving disputes can become time-consuming and sometimes costly.
We’d always recommend subcontractors to ensure a written agreement or contract is in place before the commencement of any work. Not only does this provide legal protection, but it also clarifies the expectations and obligations of both parties.
Benefits of subcontractor agreements
Implementing a subcontractor agreement offers a wide range of benefits, including:
Transparency: A written agreement clearly designs the expectations, responsibilities and obligations of both parties. This transparency helps to prevent misunderstandings.
Legal protection: In the event of a dispute, a subcontractor agreement serves as a legal document that outlines the pre-agreed terms.
Payment security: Clearly defined payment terms ensure subcontractors receive timely and fair payment for their work. This reduces the likelihood of payment disputes.
Risk management: By specifying work requirements, liability clauses and other obligations, an agreement helps manage and mitigate risks that are associated with the subcontractor’s work.
Professionalism and credibility: Having a formal agreement in place also demonstrates professionalism and credibility. This helps to foster trust between the two parties and may even create stronger working relationships in the future.
Overall, a subcontractor agreement is always a wise document to have in place, ensuring both contractors and subcontractors are always on the same page.
Need more advice or a CIS Payroll solution?
Here at Contractwise, we’ve spent years providing comprehensive CIS advice and services, helping everyone working in the industry remain compliant. Some of the leading services we offer include:
If you need support with CIS payroll, don’t hesitate to contact our expert team today.