Important Points While Drafting Subcontract Agreements
Executive Summary
Subcontracts are not just paperwork, these are risk management tools. Poorly drafted agreements are one of the biggest sources of disputes in construction projects. The key principle is that Subcontracts should generally mirror the main contract (“back-to-back”), unless consciously adjusted.
This article highlights six critical points subcontractors and contractors must keep in mind:
- Back-to-back risk allocation – Ensure employer obligations flow down.
- Delay, extensions, and termination – Mirror timelines and consequences.
- Claims and notices – Match main contract deadlines and formats.
- Payments – Protect against cash flow exposure with pass-through provisions.
- Variations – Align change procedures and valuation.
- Dispute resolution – Keep mechanisms consistent with the main contract.
The takeaway: A Subcontract is the contractor’s first line of defense against project risks, not a formality.
In large infrastructure and construction projects, Contractors almost always rely on Subcontractors to execute major portions of the works. However, one of the most common sources of disputes arises not from technical issues, but from poorly drafted subcontract agreements.
A subcontract should not be treated as a mere formality. It is a critical risk-management tool. The golden rule: Subcontracts should be entirely back-to-back with the main contract, unless expressly and deliberately modified.
Below are key points to keep in mind when drafting subcontract agreements:
1. Back-to-Back Risk Allocation
Every obligation that the contractor has towards the Employer should be mirrored in the subcontract. This ensures that if the Employer imposes a liability (e.g., for delay damages), the contractor can lawfully pass it down to the responsible subcontractor.
2. Delay, Extensions, and Termination
- Delays: Subcontractors should be subject to the same time obligations as the contractor under the main contract.
- Extensions of Time (EOTs): If the Employer grants or rejects an EOT, the subcontract should provide clear provisions on how this flows down to the subcontractor.
- Termination: Grounds and consequences of termination must reflect the main contract to avoid gaps that leave the contractor exposed.
3. Claims and Notices
The subcontract should require the subcontractor to provide timely notices and substantiation of claims, in the same form and timeframe required under the main contract. If the contractor is bound by strict deadlines, the subcontractor should be as well.
4. Payments and Pass-Through Provisions
Payments to Subcontractors should ideally be linked to payments received from the Employer (“pay-when-paid” or “pay-if-paid” clauses, depending on jurisdiction). This protects Contractors from bearing cash flow risks that rightfully belong to the Employer.
5. Variations and Changes
Subcontracts should clearly define how Employer-approved variations are instructed and priced. Without this alignment, disputes over scope and rates are inevitable.
6. Governing Law and Dispute Resolution
It is critical that dispute resolution mechanisms are compatible with the main contract, ensuring consistency and avoiding contradictory outcomes.
Final Word
Subcontracts are not “mini-contracts” to be rushed through. They are the Contractor’s first line of defense against risks arising under the main contract. Unless there is a very good reason to depart, a subcontract should mirror the main contract obligations in all major aspects, especially delay and termination.
At Conslex Contract Solutions LLC, we work with Contractors and Subcontractors to draft subcontracts that are practical, protective, and dispute-resistant. Even small adjustments in wording can prevent major financial losses down the road. If you’d like expert support in reviewing or preparing your subcontract agreements, reach out to us at info@conslex.com.