Subcontractor Agreements
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Introduction
A Subcontractor Agreement is a legally binding contract between a main contractor and a subcontractor, governing the performance of specific work as part of a larger project. In the UK, these agreements are subject to:
- Common law contract principles
- Construction Act 1996 (payment terms for construction contracts)
- Employment Rights Act 1996 (distinguishing genuine subcontractors from employees)
- IR35 tax legislation (for personal service companies)
This guide outlines the essential components and legal considerations for compliant subcontractor agreements under UK law.
Key Characteristics of UK Subcontractor Agreements
| Feature | Description |
|---|---|
| Relationship | Business-to-business (not employment) |
| Control | Subcontractor manages how work is done |
| Payment | Typically project-based or periodic invoices |
| Substitution | Right to send replacement workers |
| Equipment | Subcontractor usually provides own tools |
Essential Clauses in a UK Subcontractor Agreement
a) Parties & Scope of Work
- Full legal names and registered addresses
- Detailed description of services/specification
- Project location and timelines
b) Payment Terms
- Agreed pricing (lump sum/day rate/hourly)
- Payment schedule (aligned with Construction Act if applicable)
- Retention clauses (max 5% in construction)
- Late payment interest (per Late Payment Regulations)
c) Obligations & Standards
- Quality requirements (compliance with industry standards)
- Health & safety compliance (CDM Regulations 2015)
- Insurance requirements (public liability, employers' liability)
d) Relationship Management
- Right to inspect work
- Defect rectification procedures
- Non-solicitation of staff/clients
e) Intellectual Property
- Ownership of developed IP (typically main contractor)
- Licence to use subcontractor's pre-existing IP
f) Termination
- Notice periods (typically 7-28 days)
- Termination for breach (including insolvency)
- Consequences of termination (payment for work done)
g) Legal Compliance
- IR35 status confirmation
- Modern Slavery Act compliance
- Data protection (UK GDPR) provisions
Special Considerations for Construction Subcontracts
Housing Grants Act 1996 requires:
- Right to interim payments
- Payless notices for deductions
- Adjudication for disputes
Construction Design and Management Regulations 2015:
- Clear allocation of H&S responsibilities
- Competency requirements
- Building Safety Act 2022 obligations for higher-risk buildings
IR35 & Employment Status Risks
To maintain genuine subcontractor status:
- No mutuality of obligation
- Right to provide substitute
- No employee-like benefits
- Equipment provision by subcontractor
- Financial risk borne by subcontractor
Warning: Over-control may create employment rights under:
- Employment Rights Act 1996
- Off-payroll working rules (Chapter 10 ITEPA 2003)
Dispute Resolution
Recommended escalation process:
- Good faith negotiations (14 days)
- Mediation (CEDR/LCIA rules)
- Adjudication (for construction disputes)
- Court proceedings (English/Welsh courts)
For expert assistance at any stage of the appeal or judicial review process, it is advisable to consult with immigration solicitors or legal advisers who specialize in these areas.
