Subcontracting clauses

Authored by the LexisNexis Legal Writer team.

In many business and commercial contracts for the performance or supply of services or other work, one or more parties may wish to subcontract the performance of their obligations under the contract to a third party (or prevent parties from doing so). While subcontracting is particularly common in the building and construction industry (where a builder will typically subcontract various of its building obligations to subcontractors), it is also common in other commercial arrangements, including in the engineering, environmental, manufacturing, property management, health care and other services industries.

Subcontracting is different to assigning rights, or novating rights or obligations, under an agreement. In subcontracting, the subcontracting party’s rights and obligations under the main agreement remain with the subcontracting party, but that subcontracting party enters into contractual arrangements with a third party for that third party to perform some or all of the subcontracting party’s obligations under the main agreement.

Including a subcontracting clause in the agreement serves to:

• expressly state whether subcontracting is permitted or prohibited (in the absence of a subcontracting clause expressly permitting or prohibiting subcontracting, whether subcontracting is permitted will depend on the nature of the contract and its provisions);
• if the permission or prohibition is subject to any conditions, set out what those conditions are (eg, requirements that subcontracting is only permitted with the other party’s prior written consent, requirements about the skills, experience or qualifications of subcontractors, requirements about the provisions that must be included in subcontracts, etc.); and