Do subcontractors need a contract?

by | Nov 27, 2022

Subcontracting is standard practice in the construction world. There are always fluctuations in work, so it makes sense to have a flexible workforce to help stay on top of demand.

It often starts on an ad-hoc basis – a couple of days work here and there when you have a big project. You agree the terms verbally or via a few texts – nothing formal.

But what happens when you start to rely on those subbies more and more? When those odd days here and there start to turn into weeks or even months? When is the right time to think about getting a formal agreement in place? Do subcontractors need a contract, or can you just blag it from job to job?

You might be pleased to hear there’s no legal requirement for a written contractor-to-subcontractor agreement. But before you dismiss the idea completely, let’s look at some of the benefits of putting one in place.

What is a subcontractor agreement?

A subcontractor agreement is a written agreement between you and your subcontractors documenting the terms of your working relationship. It is designed to protect both parties by outlining the responsibilities and expectations of both sides.

Usually, the main contractor will provide the contracts, but sometimes subcontractors have their own agreements.

You are not legally required to have a subcontractor agreement, but if you regularly hire subcontractors to help with your construction projects, it is recommended. Having a subcontractor contract in place can be the key to resolving disputes quickly (and in your favour).

The way you work with your subcontractors might not be exactly the same as how other contractors work with their subcontractors, which is why you should never just copy and paste somebody else’s contract.

What is in a contractor-to-subcontractor agreement?

This depends on the nature of the agreement, but typically, a construction contract will contain details of the working relationship between the main contractor and their subbies. Your agreements should reflect reality so that if any issues arise or a subcontractor tries to take legal action against you, the contract’s validity can’t be disputed.

Service requirements and responsibilities

Is the subcontractor being contracted for a single construction project or several client projects? What are the terms of service and scope of work? Include any relevant due dates and outline the contractor’s main responsibilities.

Payment terms

How and when will your subcontractors be paid? Is the subcontractor working on a fixed price per job or an hourly rate, for example? How often will they be paid? Many small businesses prefer to be paid weekly as this helps with cash flow, but this will depend on the scope of your project.

Will you withhold any payment if the job does not meet client expectations? When will payment be released?

Notice requirements and right to substitution

Unlike employees, subcontractors do not have to give notice, nor do you have to provide notice. However, if a subcontractor has agreed to complete a project, you might want to include notice terms so you are not left in the lurch.

A right-to-substitution clause allows your subcontractor to send someone with the same level of expertise as them to complete work in their place. You would pay the subcontractor, and they would pay their substitute.

Resolving disputes

What happens if your subcontractor’s work is not completed to the required standard? Is the subcontractor responsible for rectifying unsatisfactory work at their own expense? What are the timescales within which the subcontractor must complete any remedial works?

Make it clear in your contracts what the subcontractor is responsible for and how any disputes will be resolved.

Terms specific to your business

You may have some terms that are specific to your business. For example, do you allow your subcontractors to use your equipment or vehicles? Do you require them to provide details of their liability insurance?

Why do you need a contract between the contractor and subcontractor?

Hiring subcontractors isn’t without risk. You are relying on them to support your project, but as the main contractor, you will be responsible for delivering to client expectations. Having a contract between you and your subcontractors can protect you.

Protect your business

You may think you have a great relationship with your subbies right now, but you don’t know how they might react when work dries up unexpectedly. And it’s not unheard of for disgruntled subcontractors to go after contractors for unpaid holiday pay or unfair dismissal.

Having a contract protects you.

A subcontractor can’t say they thought they were an employee if they signed a contract that clearly states they aren’t.

And it’s not just disgruntled subbies you’re protecting yourself from – it’s unnecessary hassle and cost too. If your contract makes it clear subbies are responsible for rectifying any mistakes at their own cost, you aren’t leaving yourself out of pocket if they mess up.

Protect your subbies

Contracts don’t just protect your business – they protect your subcontractors too.

Being self-employed means your subbies are a business in their own right. And being a business owner comes with financial risk.

When you have a contract, your subbies have more clarity over what that risk looks like. Plus, they don’t need to worry about whether you’re going to screw them over because all the terms of the relationship are clearly documented.

Put yourself in a subcontractor’s shoes. Would you rather work with a company that leaves nothing open to ambiguity or a company where the terms are vague or unclear?

A written contract might feel like an unnecessary formality, but it actually benefits everyone.

Employment status can’t be misinterpreted

One of the biggest concerns for construction firms using subbies long-term is that HMRC might open an enquiry into employment status. If HMRC views your relationship as one of employer and employee rather than one of contractor and subcontractor, they may reclassify your subbies.

It’s unlikely they’ll just turn up at your door out of the blue, but a VAT or CIS query could lead them to take a closer look. And if they do start getting curious about your subbies, having the terms of your relationship clearly documented minimises the risk of them misinterpreting them as employees. The terms of your contract can go some way to proving they are genuinely self-employed.

While HMRC won’t always take a contract at face value, having one demonstrates that both parties view the relationship as one of contractor and subcontractor, not employer and employee. And as long as it matches up with reality, HMRC should lose interest pretty quickly.

Contracts can remove ambiguity and confusion

Contracts don’t just protect you from HMRC – they improve the relationship between you and your subbies by removing ambiguity.

Who is responsible for supplying materials, tools and PPE? Can your subcontractors send a substitute in their place? Will subbies have to rectify mistakes at their own cost? Do you cover fuel expenses? Are subbies expected to wear your branded uniform on-site?

Having written terms sets the expectations and ensures everyone knows who is responsible for what. If everything is documented, there will be no disagreements or misunderstandings.

Putting subcontractor contracts in place is easier than you might think

There are plenty of reasons to get a subcontractor contract in place, but if you’re busy, it can feel like just another job on the never-ending to-do list.

And let’s face it, it’s not a priority, is it? You’ve managed until now, so you can manage for a bit longer, right?

But why put it off? Especially when getting your subcontractor agreements in place isn’t as time-consuming as you might think.

All you need to do is tell us how you work with your subbies, and we’ll do the rest.

We’ll create bespoke contracts, and then we’ll get your subbies to sign them electronically. No hassle for you – no hassle for them. A few minutes of your time for complete peace of mind.

Plus, we offer an insurance-backed guarantee on all our contracts, meaning if HMRC ever does open an enquiry, we’ll handle it on your behalf and pay any associated costs.

You can find out more about how it works here, or book a call and let us get started with your bespoke contractor-to-subcontractor agreements.

Frequently asked questions about subcontractor contracts

Do subcontractors have their own agreements and contracts?

Usually, the main contractor will provide the contract, but some subcontractors have their own agreements. If they do, you will need to agree on whether to use yours or theirs.

It is not advisable to have two contracts in place as they may contradict each other, and should you ever have a legal dispute, it would be difficult to determine which contract had the most validity.

If a subcontractor isn’t happy with any of your terms, you can amend the terms or add special clauses for a bespoke agreement.

Does a contractor-to-subcontractor agreement give subbies employment rights?

No. A self-employed contractor does not have the same rights as an employee. A self-employed contractor is not entitled to the same benefits as someone who is employed, such as holiday pay, sick pay, maternity pay and so on.

Do you need a law degree or a lawyer to write a contract?

No. Legal fees can be expensive, and you don’t need business lawyers to draw up contracts (although this is an option). You can create your own agreements – our book will teach you how. However, if you don’t have the time or expertise to do it yourself, we can take care of it.

We specialise in creating bespoke subcontractor contracts for construction companies. And our service comes with an insurance-backed guarantee.

Do I need to bother with a formal agreement?

There is nothing in the law that says you must have a contract if you hire subbies. However, if you do want to hire subbies long-term, it is recommended.

Can I use an off-the-shelf template?

Contracts created using free templates may offer a little protection, but they won’t be bespoke to your business, so it would be easier for a good lawyer to find discrepancies. We recommend a bespoke contract and are more than happy to create one for you. Contact us to get started.

You might not even need our help!

But if you use labour-only subcontractors long-term and want to continue doing so, let’s have a chat. If you are at risk, we’ll take that risk off your hands.

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