12 April 2021
Mind The Risk Gap – Best Practice When Using Subcontractors – Part 2
In Part 1 of this post, we discussed the steps to take to safeguard both your business and business relationships. We considered the basic checks to carry out on your subcontractor, which will often dictate how your contractual relationship should be structured. We also discussed the importance of the contract, and in this post we go into more detail about the contract terms.
Other Key Terms Of The Contract
Aside from the normal provisions setting out respective obligations, payment terms, termination rights and so forth, subcontractor contracts should be clear about the nature of the relationship between the two parties.
An ‘independent contractor’ clause is recommended to make it explicit that the parties are acting as independent businesses and there is no joint venture, agency or indeed, employer-employee relationship.
If your subcontractor is operating as a limited company, adding in provisions that clarify the relationship further in line with IR35 legislation will also be important. The aim here is to ensure that the subcontractor is not deemed to be your employee for tax purposes. Irrespective of IR35, even if you are contracting with a sole trader, similar provisions are considered best practice too.
Reserving the right to amend and update the agreement is good practice. Sometimes sole traders switch to working as limited companies and vice versa and as your working relationship evolves or new legislation emerges, it would be in the best interests of both parties to review and update their contract appropriately from time to time.
Commercial Pitfalls
In order to cultivate a positive relationship with subcontractors, businesses often shy away from a comprehensive agreement and seek a short contract instead. As outlined here, leaving out key protections could also leave your business exposed to unnecessary risks.
As your client base grows, you may end up with a variety of different client contracts and this creates the risk of a mismatch in any related subcontractor agreements. It is, therefore, important to conduct regular audits of provisions that have been negotiated with clients which then need to be covered off with subcontractors.
Subcontractor engagements often comprise a mixture of project-based assignments or ongoing retainer assignments. Different provisions may apply to each type of engagement. It is possible to draft a subcontractor agreement to work with both types of engagement, but this needs to be anticipated at the outset.
Sometimes, insurance checks are completed at the outset but then not routinely verified thereafter. This can be implemented once a year, and it is one of the easiest ways to protect your business.
How We Can Help
Subcontracting agreements should never be dealt with in isolation. Identifying gaps in the contracts right through the supply chain is crucial in ensuring your subcontract agreements protect your interests. Our solicitors can help you get the analysis right and contracts drawn up in a way that give you the solid foundations to continue running your business with peace of mind.
For further information, please contact us.
Notes
For more information about commercial contracts, click here.