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Subcontractor 101

By CCIWA Editor 

A business may choose to sub-contract work to reduce costs, ensure product and service quality, increase productivity or for many other qualitative reasons.

Subcontracting is a common practice for businesses.

It is defined as the contractual process by which a prime contractor entrusts a third party with all or part of a job to be performed under specified conditions, while the prime contractor keeps the responsibility for the finished product.

Infranomics director Cameron Edwards, which provides infrastructure advice and financial services, says with technical expertise changing so much, it can be tough to find one person who can fit into many specialised areas.

“A business can subcontract specialists in many different areas for expertise to come together to provide the best solution for a requirement,” he says.

“And it’s easier than it once was to engage a flexible workforce. By using subcontractors, organisations can benefit from increased efficiency and quality because the service providers are motivated to offer the best value for money for their services in a competitive market.”

Edwards says clarity is king when it comes to entering a subcontracting agreement.

He says most of the time subcontract agreement disputes are a result of a misunderstanding of remuneration and the scope of works to be completed under the terms of the contract.

“It’s critical that parties understand what is being delivered, the rates and what milestones are expected and by when to trigger payments,” he says.

“But most importantly of all, a resolution process has to part of the agreement to avoid courts and lawyers if things go wrong.”

Edwards says subcontractors can be considered employees under certain working relationships.

If a person is ‘engaged’ as a subcontractor but is legally considered an employee, the person could potentially be owed unpaid leave entitlements, wages (particularly overtime and penalty rates) and superannuation contributions,” he says.

Determining whether a worker is a subcontractor or employee can be complicated. It is recommended that you seek legal advice if unsure and CCIWA’s workplace relations lawyers can help with this.

“It’s reasonable to start negotiating an employment contract if the subcontractor is being told how and when work is performed, they are an integral part of the business, the contractor is paid the WA award, the employer supplies materials and equipment,” Edwards says.

Subcontractor agreement essentials

  • Who is providing the service?
  • Who is receiving the assistance?
  • What service/services are being offered?
  • What is the payment structure?
  • If payment is on an hourly basis, what is the hourly rate?
  • Will the subcontractor agreement include reimbursement for expenses? If so, which qualify?
  • Does your subcontractor require a deposit?
  • When do you pay your subcontractor/how often?
  • Do you need to provide the subcontractor with any resources for them to carry out their work? When do you need to provide them with these resources? You may need them from your client.
  • Who will own the work under this subcontract agreement?
  • Does the subcontract agreement acknowledge authorship of their work?
  • When does the deal end?
  • Which factors terminate the subcontract agreement? Can either party do so at any time?
  • What is the signing date?

Contact CCIWA’s employee relations team for advice on (08) 9365 7660 or advice@cciwa.com.

A business may choose to sub-contract work to reduce costs, ensure product and service quality, increase productivity or for many other qualitative reasons.

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