Successful Sub-Contracting

If you sub-contract, it is most likely for one of two reasons: either the project requires specialist expertise which you can’t (or don’t) offer (e.g. a web developer outsourcing the branding and copy-writing aspects of a new website); or because you simply need extra resources to cope with your workload.

This type of collaborative working can be beneficial to all of the parties involved – but it is not without its risks. This article looks at the risks of being ‘piggy in the middle’ and offers some practical advice to help you sub-contract successfully in the future.

The risks of being ‘piggy in the middle’

As the supplier, you are the only person liable to the client for the work that has been ordered. Quite simply, this means that it is you who will be in the firing line – even if it is your sub-contractor who is at fault. You are the one who will suffer the hassle, the potential loss of reputation, and perhaps even finish up having to pay for the work to be re-done.

What’s more, unless the sub-contractor is in breach of their contract with you, you will not be able to withhold payment from them. It is therefore vital that there are no ‘gaps’ between your obligations to the client and the sub-contractor’s obligations to you.

Hints and tips to help you sub-contract successfully

DO:

• Enter into a proper written agreement with the sub-contractor, and bear in mind that even if you have a standard sub-contractor agreement, there is no ‘one size fits all’ solution, and it may need to be adapted to suit.
• Ensure that the sub-contractor’s obligations to you are at least as tight as those you owe to the client, e.g. in respect of timescales, confidentiality etc.
• Look out for clauses in the main contract which require you to ‘ensure than any sub-contractor… ‘, and ensure that these too are reflected in your contract with the sub-contractor.
• Reduce the risks and stay in control by only outsourcing specific tasks rather than the whole job. This way, the sub-contractor may not even need to know the identity of the main client and you may be able to keep their work more administrative than strategic.
• Carefully consider quality control – there’s no point outsourcing work if you have to check everything yourself! Where appropriate, include set quality standards or a checklist for your sub-contractor to follow, and then oblige them to actively confirm that their work meets these standards when it is submitted to you.
• Put arrangements in place to ensure good communications between you and the sub-contractor. You don’t want the project to fall over because the sub-contractor only received half the information they needed to fully understand the client’s requirements. Equally/, if there is a problem or delay, you need to be made aware of it as soon as possible, so that you can decide how to handle this with your client.
• Make sure your sub-contractor has appropriate insurance cover.
• Make sure you include the sub-contracting aspect of the work in your costings, as even if the client knows you are sub-contracting, you still have an obligation to use appropriate skill and judgement in selecting and managing your sub-contractors.

DON’T:

• Sub-contract work without checking that your contract with the client doesn’t prohibit this. If the client’s consent is required, ensure this is obtained in writing.
• Assume that just because your sub-contractor is an old friend or longstanding business associate, everything will be fine. Whilst it’s crucial to use sub-contractors whose work you know and trust, you also have an obligation to your client to appoint the best and most suitable sub-contractor to work on their project.
• Assume that any contract with your sub-contractor will suffice. Ideally, you will be working under your standard terms and conditions with your client and under your standard sub-contracting terms with your sub-contractor. If this isn’t the case though, look for the gaps.
• Put yourself in a position where you have to pay the sub-contractor before the work is completed to the client’s (reasonable) satisfaction. And make sure you manage cash flow by ensuring that you have longer payment terms in your arrangements with your sub-contractors than the client has with you.
• Ignore the risk that the sub-contractor might approach the client directly for more work (work you could, perhaps, have done yourself) in the future, behind your back. This should be dealt with in the contact in a fair and reasonable way.
• Rely on your general contract wording if your client insists that any sub-contractors are bound to comply with specific provisions from the main contract. The wording might be similar, but the differences could be important, so ensure that the exact wording is replicated in the sub-contract (there’s a nice easy way to do this which I often use). Make sure you discuss this with the sub-contractor and that he or she understands these obligations.
• Take responsibility for the standards of a sub-contractor that has been specifically chosen by the client. The client should remain accountable for their own choice in this situation.
• Forget to protect yourself against financial loss should the client be entitled to cancel the main contract. If you don’t provide for this, you could be liable to pay the sub-contractor the full cost of their services even if their work is no longer required.

Not sure about sub-contracting?

Sub-contracting isn’t the only way to pass elements of your work on to a third party. If you’d prefer not to be ‘piggy in the middle’, why not ask your client to enter into a direct contract with the sub-contractor, if appropriate? E.g., a web designer might introduce the client to a graphic designer for the purpose of creating a new logo, but let them enter into a separate contract rather than sub-contracting from the main website agreement.

This approach may not be as commercially attractive as sub-contracting, unless you can negotiate referral fees, but you’ll be protected from many of the risks.