3 Tips for Effective Subcontracting

The days of the “jack of all trades” are behind us. Construction, engineering and consulting businesses are becoming ever more specialised, especially at the SME end of the industry.

On the other hand, projects are increasingly complex and require diverse skill sets.

Does this mean a business that doesn’t have all the relevant capabilities in-house is excluded from bidding?

Of course not. Specialised businesses can leverage their commercial relationships to partner with complementary skill sets.

A rising tide lifts all boats

I’m a big fan of collaboration over competition. There is plenty of work out there for all of us. Hoarding work and taking on projects outside our capabilities is not good business.

There are plenty of ways that SMEs can team up to pursue profitable opportunities – joint ventures, consortiums and industry alliances, to name a few. While they all have advantages, subcontracting cannot be beaten as the most straightforward, cleanest way of forming a commercial partnership.

But not all subcontracts are created equal. Read on for three ways you can lift your subcontracting game.

1. Make sure you pass on critical obligations

The head contract may require you to pass on certain obligations to every other company in your supply chain. This is often the case in relation to insurance, WHS, modern slavery and ethical behaviour.

Only some head contracts have a convenient subcontracting clause explaining this step by step. The obligations may be spread out all over the place. However, identifying relevant pass-throughs can be as easy as doing a global search for the term “subcontract” through the head contract and ensuring equivalent clauses are in your proposed subcontract.

A global search may not be enough, however; sometimes obligations and risks must be passed on even though they don't specifically refer to subcontracts. If you're concerned about this, it's a good idea to get a professional to look at the head contract. At SoundLegal our initial contract review will always identify obligations that should be included in your subcontracts.

2. Streamline the subcontracting approval process

Many head contracts?require you to obtain written approval before subcontracting any project scope. This is impractical if your business relies heavily on subcontracting, as many construction businesses do.

The solution is to amend the head contract to streamline the approval process. Two ways you can do this are:

• Nominate a list of potential subcontractors in the head contract so that you don’t need to obtain approval for any of these companies, even if you don’t end up using them.
• Introduce an approval threshold so that any subcontracts below an agreed value do not require written approval.

3. Be pragmatic – back-to-back isn’t always the best

It’s tempting to think you’re covering all bases by telling all your subcontractors they’ll be signing a “back-to-back” contract and then bolting your head contract straight onto the back of the subcontract.

This only works well if the subcontractor is taking a large portion of the scope or the risks are very similar to those of the head contractor. If the scope is different, the risks will also differ. A back-to-back subcontract will either create vast swathes of ambiguity (particularly if there are inconsistent terms in the subcontract itself versus the attached head contract) or invite pages and pages of turgid special conditions that make no sense to anyone.

Don’t be that D&C contractor that tries to make your designer take on all of the construction risks by telling them to “just read the bits that are relevant to you” or the head contractor that sends a 150-page doctored head contract to a subcontractor with a $20,000 scope.

That stuff is amateur hour. Plus, it would be best if your subcontractor worked with you from the word go rather than fighting you. The best way to do that is to sign them up on a practical subcontract that makes sense for their scope.

How can SoundLegal help?

Hit reply or?book online?if:

• You need a simple subcontract template that suits most of your work and can be adapted to the head contract with some special conditions.
• You would like us to review the head contract and develop a tailored subcontract template that covers your subcontracting risks.
• You’re cooking up a complex project, and you’d like us to draft a suite of head contracts and subcontracts that all work together.

UPCOMING EVENTS

8 and 9 December 2022?Contract Execution and Close Out

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