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In many industries, it’s common practice to sub-contract some of your work to other businesses.
Put simply, this means engaging other contractors to do part or all of the services you’ve promised your client.
While sub-contracting is a great way to scale your business, you need to make sure you’re doing it right. If your business engages sub-contractors, it’s a good idea to have both a Sub-Contractor Agreement and a Head Contract Review in place with each one you engage.
Why Do I Need A Sub-Contractor Agreement?
Engaging sub-contractors is an efficient way of expanding your goods and/or services offerings to your customers – but your reputation is also at stake. To help protect your business, it is crucial to have a Sub-Contractor Agreement in place.
Sub-Contractor Agreements are important to make sure both your business and the sub-contractor are aware of the scope of work to be performed, and are clear on the roles and responsibilities of both parties.
But Why Are They So Important?
Let’s put it this way. When a customer comes on board with you, they might sign a contract or agree to a scope of work for services that you promise them. Often, we call this the Head Contract.
When you ask a sub-contractor to do some or all of that work on your behalf, you want to make sure that they also deliver on what you have promised your customer. This is where a Sub-Contractor Agreement comes in. It is vital to have these terms clearly set out so that:
- Scope of services: This ensures both parties are aware of their responsibilities under the agreement.
- Confidentiality: If your sub-contractor will have access to your systems or business processes, it’s important to have a binding confidentiality clause to ensure nothing gets disclosed.
- Commission (if applicable): If your sub-contractor is paid on a commission basis, the payment terms need to be clearly reflected in the agreement.
- Payment and late payment: Payment provisions should be clear, including what occurs if payments are late and the methods for recovery.
- Sub-contracting restrictions: These restrictions ensure that your sub-contractor does not further delegate their services without your consent.
- Dispute resolution: Outlines the process for resolving any disagreements, helping to avoid litigation or service disruption.
- Non-compete: This ensures your sub-contractor cannot provide their services to your direct competitors. For more details, see our Non-Compete Agreement guide.
- Intellectual Property (IP) protection: This clause protects your IP, such as designs and proprietary business processes. It’s wise to include provisions on IP assignment and licensing – for further information, check our IP Assignment resources.
- Term and termination: Defines the duration of the agreement and the methods for legally ending the arrangement.
Why Do I Need A Head Contract Review?
As mentioned above, you need to be certain that your sub-contractor is fully aware of what you’ve promised to your client. In the legal world, this is where flow-down clauses come in.
Your Head Contractor Agreement may contain terms that must also bind your sub-contractor. These flow-down clauses make sure that the obligations and responsibilities you’ve agreed to with your client carry over to your sub-contractor.
Flow-down clauses are particularly important for crucial terms such as payment – for example, specifying that the sub-contractor will only be paid when your business, acting as the head contractor, receives payment from the client.
It is essential that your Head Contractor Agreement is referred to when drafting your Sub-Contractor Agreement. This approach prevents any misunderstandings and inconsistencies when delivering the promised goods or services.
Most importantly, a Head Contract review will ensure that liability clauses in your Sub-Contractor Agreement are drafted correctly.
In 2025, keeping your contracts current is more critical than ever. As laws and industry standards evolve, our Contract Review and Redraft service can help ensure that both your Head Contract and Sub-Contractor Agreement remain compliant and effectively protect your business interests.
This is why, if you are a business with a direct contract with a customer (a Head Contract) and you need to employ a sub-contractor, you should have a Head Contract review first, before your Sub-Contractor Agreement is drafted.
Example
Richard has received a project to complete a full kitchen and bathroom renovation for his client.
As Richard doesn’t have the requisite plumbing expertise, he decides to engage Paul, a qualified plumber, as a sub-contractor for his project.
It is important that Richard has a well-drafted Sub-Contractor Agreement in place to ensure Paul understands details such as the project deadlines and quality requirements. The agreement would also clarify that Richard will only pay Paul once the client has paid him, thus safeguarding his cash flow.
What If I Am A Sub-Contractor?
If you are a sub-contractor, the situation is slightly different. You won’t need a Head Contract review as you don’t have a direct contract with the client. Instead, you should ensure that you have a solid Sub-Contractor Agreement in place with the business that hires you.
Need Help?
Navigating Sub-Contractor Agreements in 2025 can seem like a complicated process, especially with evolving commercial laws and digital service delivery models. It’s essential to ensure that your agreements incorporate updated legal requirements, including provisions for remote working, electronic signatures, and enhanced data privacy standards. Our recent updates on Privacy Policies and Online Service Agreements reflect these changes and can offer further guidance in drafting robust contracts.
We’ll make sure your interests are protected, whether you are hiring a sub-contractor, or are a sub-contractor yourself!
Get in touch with us at team@sprintlaw.com.au or call us on 1800 730 617 to have a chat about Sub-Contractor Agreements and to find out how we can help broaden the scope of work you offer your clients!
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