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My business needs to engage a subcontractor – what do I need to know?

24 May 2022

4 min read

#Corporate & Commercial Law

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My business needs to engage a subcontractor – what do I need to know?

Do you have a consulting or professional services business and need to engage a subcontractor in order to deliver services to your client? We’ve set out five tips below to help get you started.

 1. Does your client allow you to subcontract your obligations?

Many agreements that are drafted in favour of your client will require that you at least obtain the consent of the client to subcontract any of the obligations. Further to this, you may review your client agreement to check what needs to be done before you consider engaging the subcontractor. Ultimately, most clients will be okay for you to subcontract, provided that you still take ultimate responsibility for the delivery of the services.

2. Have an agreement in place

Having an agreement in place between your company and the subcontractor is very important. For example, any copyright created by a subcontractor when providing services to you will be owned by the subcontractor, unless it is assigned in writing. This is unlike the situation where an employee creates intellectual property in the course of their employment.

From an employment point of view, it is also important to have an agreement in place to agree on the relationship. An agreement will help ensure that you do not take on employer responsibilities, which is especially important if the subcontractor is an individual (with an ABN) as opposed to a company. You will also want to ensure your subcontractor has their own insurance, especially for any employees it engages. Read about some recent developments in this area from our employment team.

3. Passing through client obligations

When drafting an agreement between you and the subcontractor, you should ensure that you have in mind any obligations you have to clients. For example:

  • have you agreed to certain service levels with your clients that need to be reflected in the subcontractor agreement?
  • does the client require you to assign any new intellectual property rights to them or to obtain a licence for them to use such rights?

You will need to ensure that you are passing these obligations on to the subcontractor or ideally having a buffer that is more favourable to you.

It is worth noting that you will not be able to pass through any obligations to small businesses, to the extent that they would be considered unfair contract terms. Therefore, you should ensure you also don’t agree to such terms in your client agreement.

4. Build your intellectual property

At the very least, you would want to make sure you obtain a licence from your subcontractor to use the intellectual property rights in the materials they provide for all the purposes you will require. This will often be restricted to use for a particular project and you will need to make sure that is reflected in your client agreement, so that you are not giving away more than you have.

Ideally, the subcontractor would assign to you those intellectual property rights so that you can use them on an ongoing basis and deal with them as the owner of those rights. From there, that would then build the value of your business and allow you to use the materials without restriction.

5. Protect your own intellectual property, confidential information and client contacts

You have no doubt worked hard to obtain a relationship with your clients and it is important that you maintain that relationship and not have the subcontractor take your place.

An agreement can ensure that any intellectual property and confidential information that you provide to the subcontractor for the purposes of them providing you with services, is restricted for use and can only be used for that purpose. You can also include reasonable restraints on the subcontractor seeking out your client to engage with them directly but such restraints need to be carefully drafted to be enforceable.

Practical steps will often be a better way to prevent this outcome, such as ensuring you can trust your subcontractor and that they have an understanding that the client relationship is maintained by you.

If you have any questions, please contact us below or send in your enquiry here.

Author: Emily Booth

The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.

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