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Construction sub-contracts are often critical to project success but involve complex legal risks that vary by party and project type.
In complex, multi-party construction projects, whether commercial property developments or residential schemes, early planning with an experienced construction lawyer is essential. Different parties often have varying approaches to risk, which can cause disputes, delays, and cost overruns if not carefully managed. Sub-contracts must be carefully tailored to reflect each party’s role and the specific project type, ensuring risks are clearly allocated and your interests protected from the outset.
Construction sub-contracts are vital to delivering complex projects but carry significant legal and commercial risks. Delays, insolvency, defects, and coordination failures create exposure that cascades through the contract chain.
Where a sub-contractor is engaged, the main contractor is still ultimately responsible for fulfilling all the obligations under the construction contract with its employer, even if it is one of the sub-contract team who fails to perform.
While many principles apply across sectors, there are important differences between commercial property and residential developments:
Commercial Projects - often involve larger-scale works with complex design, higher contract values, multiple trades, and more negotiation flexibility. Risks focus heavily on programme delays, liquidated damages, and design coordination.
Residential Developments - typically have stricter regulatory and warranty requirements (such as NHBC or Premier Guarantee schemes), more standardised contract forms, and higher emphasis on snagging, defects liability, and handover quality. Residential projects may also face more consumer protection regulations and financing structures.
Understanding and managing the specific risks and requirements of each project type - developer, main contractor, and sub-contractor, is key to successful contract management and project delivery.
Developer’s Perspective
Ensuring the main contractor effectively manages sub-contractors.
Achieving back-to-back liability so sub-contract terms mirror main contract obligations.
Maintaining overall project programme, cost, and quality control.
Due diligence on and/or ability to veto sub-contractors - verify the financial health of potential sub-contractors to assess their ability to complete their work, evaluate their track record, references, and experience in similar projects, and ensure they have adequate insurance coverage.
Liquidated damages - ensure the main contractor has properly ‘stepped-down’ liquidated damages arrangements, so it can recover sufficient funds to meet its liabilities under the main contract.
Limited direct control over sub-contractors.
Potential liability gaps if the main contractor becomes insolvent.
Exposure to delays or defects if issues aren’t properly passed down the chain.
May require collateral warranties or third-party rights from key sub-contractors.
May require performance securities like bonds or parent company guarantees.
Main Contractor’s Perspective
Clearly define responsibilities and scope with each sub-contractor.
Aligning payment terms with the main contract (recognising legal restrictions on pay-when-paid clauses).
Managing risks of sub-contractor non-performance or insolvency.
Ambiguous sub-contract terms cause disputes.
Financial exposure if sub-contractors fail to perform.
Misaligned obligations create contractual gaps.
May prefer standard form sub-contracts (e.g. JCT, NEC) suitably adapted.
May require sub-contractors carry appropriate insurance.
Include indemnities, step in and termination rights, and dispute resolution clauses in sub-contracts.
Sub-Contractor’s Perspective
Understand detailed scope, programme, and dependencies.
Manage obligations flowing down from the main contract.
Secure fair and prompt payment and variation mechanisms.
Assess potentially disproportionate risk if sub-contract terms blindly mirror main contract.
Consider risks of any limited entitlement to extensions or additional costs.
Cashflow disruption from delayed payments or disputes.
Clarify design responsibilities and applicable standards.
Ensure transparent procedures for payment, variations, and extensions.
Avoid unenforceable or harsh pay-when-paid terms.
We are highly experienced and advise developer clients, main contractors and also sub-contractors. Our work on projects which involve sub-contracts often includes keeping the project on track commercially, proportionate on costs and on time by:
Engaging effectively with other parties’ lawyers - to review and negotiate terms, identify and resolve unreasonable clauses early, facilitate practical compromises, and maintain strong working relationships—while also managing collateral warranties, guarantees, and letters of reliance to secure your rights and third-party protections, keeping the project on track and risks controlled.
Identifying and managing risks early - to avoid unexpected liabilities that increase costs or cause disputes.
Drafting clear, precise sub-contracts - that minimise ambiguity and prevent costly disputes.
Ensuring back-to-back terms - so risks and obligations flow smoothly from the main contract to sub-contractors, avoiding gaps that cause delays.
Negotiating fair, balanced terms - to prevent unfair liabilities or payment issues that could stall progress or trigger costly claims.
Securing appropriate guarantees and insurance - to protect against subcontractor failures without halting work.
Clarifying payment and variation procedures - to ensure timely payments and clear handling of changes, preventing cashflow problems.
Setting up robust dispute avoidance mechanisms - to nip problems in the bud and reduce costly delays.
Providing effective dispute resolution support - to swiftly resolve issues when they arise, minimising project disruption.
Get in touch
If you would like to speak with a member of the team you can contact us on:
Solicitor - Construction & Engineering
Daniel is a Consultant.
He is a Construction & Engineering law specialist and covers the full span of construction matters across a range of sectors including private wealth, office, living, logistics, hospitality & leisure and energy &am...
