Subcontractor Agreements

With many construction projects, sub-contracting is a necessary and important part of the project.

Our team of specialist lawyers draft, negotiate and finalise sub-contracting arrangements and advise on issues arising on sub-contracts, including disputes. We advise employers, main contractors and also sub-contractor clients.

Our experience and sector focus results in clear, practical, cost-effective advice on the most important issues.

Employer risks

The employer should review sub-contracting arrangements to ensure they support and align with the main contract. By way of example, the employer will want to ensure that the sub-contracting costings align, and relevant performance requirements match those in the main contract.

Main contractor risks with sub-contracts

From the main contractor's perspective, it will be important to avoid a poor ‘pass-down’ of key commercial obligations, gaps in liability, and/or otherwise failing to ensure there is a sensible ‘back-to-back’ arrangement with the main contract.

‘Pay when paid’ clauses are generally ineffective under section 113 of the Housing Grants, Construction and Regeneration Act 1996 (save for limited insolvency exceptions) (HGCRA 1996, s 113). Downstream payment mechanisms should therefore be compliant to avoid unintended cash‑flow exposure.

The main contractor will want to ensure there are no gaps between its obligations under the main contract and the sub-contractor's obligations under the sub-contract. If there are any problems the risk is likely to sit with the main contractor.

Legal protection for sub-contractors

Sub‑contracts should include compliant payment notice and pay less notice provisions and an adjudication clause or ANB route; if not, the Scheme for Construction Contracts will imply defaults (Scheme 2011).

We also regularly advise sub-contractors on the inherent risks which may include :-

• Sub-contractor’s obligations - sub-contractors should carefully review the scope of works and ensure obligations are clearly defined and achievable. Avoid accepting ambiguous specifications or open-ended performance standards that could expose you to liability beyond your control.

• Payment terms - ensure payment mechanisms comply with the Housing Grants, Construction and Regeneration Act 1996, including adequate due dates, payment notice requirements, and the right to suspend for non-payment. Consider retention terms and whether any bond or guarantee is required.

• Time - review programme obligations, extension of time provisions, and any liquidated damages exposure. Sub-contractors should ensure they have adequate notice provisions for delays caused by others and are not exposed to float ownership disputes.

• Dispute resolution - sub-contractors have a statutory right to adjudication under the Housing Grants, Construction and Regeneration Act 1996. Check whether the contract includes compliant adjudication provisions and consider whether arbitration or litigation is preferable for final determination.

• Termination rights - review grounds for termination by either party and the consequences of termination, including payment for work done and materials. Ensure termination provisions are balanced and that the sub-contractor is not exposed to termination for convenience without adequate compensation.

• Insurance - where there is design responsibility, professional indemnity should be addressed, alongside public/products liability and, as applicable, contractors’ all‑risks. Check JCT/NEC requirements and any funder conditions.