Sub-contractors’ agreement review
Gannons assisted a client, whose business relied on sub-contractors, by checking all of their processes and paperwork.
Our client’s business was to secure framework agreements, then sub-contract the work to specialist providers under consultancy contracts. They took a mark-up on the goods and services supplied by the sub-contractors.
Our instructions were to draft commercial consultancy contracts which passed all liability for the goods and services provided by the sub-contractor to the sub-contractor. The clients came to Gannons because of our strong track record.
The stakes were high, the potential liability considerable. Sub-contracts could be worth millions, and last for up to five years.
Issues we looked at under the sub-contract
We worked with the sub-contractors’ commercial managers to agree the terms. A variety of aspects were a cause of concern for our client. The key areas requiring review and subsequent negotiation revolved around:
In practice the customer does not always follow the strict procurement process set out in the framework agreement. The sub-contractor does not wish to accept a potentially open-ended liability in a process where the customer departed from its own procedures. We drafted a concept of co-operation and good faith which did not previously exist under the framework agreement.
Work supplied outside the sub-contracts
The sub-contractor may win work which falls outside the parameters of the orders to which the sub-contract refers. We ensured our client did not miss out on revenues from this additional business. After all, the business arose because our client had introduced the sub-contractor to the client. We devised terms and conditions so that if any subcontractor won additional work, the subcontractor would pay a fee to our client.
The customer usually supplies property such as hardware, software, confidential information, and facilities to the sub-contractor for use under the sub-contract and/or to enable a bid or tender to be made.
Technically, because our client is the party to the main framework agreement, our client is exposed. Hence our sub-contractors’ agreement clearly passed all responsibility for the return of property to the customer upon the customer’s insistence.
It was important to the framework operator that intellectual property rights in software created passed to the operator. Assignments of IP clauses were included to address that risk.
Warranties of the sub-contractor
If the sub-contractor is selected following the tendering or bidding process, our client wished to ensure the sub-contractor did not act in a manner which jeopardised our client’s reputation. Our sub-contract agreement detailed the warranties expected from the sub-contractor. These ensured our client met their contractual obligations under the framework agreement. We also prevented the sub-contractor accepting the order and then pulling out, without extremely good reasons. Additionally, we required the sub-contractor to obtain our client’s approval if they themselves sub-contracted the work.
Our client had the primary reporting obligations to the customer under the framework agreement. In practice our client has limited ability to provide the information the customer required. This is because the sub-contractors generated the information. Reporting is of vital importance in government frameworks, given the functions of some extremely sensitive departments. We drafted clauses into the sub-contractor consultancy contract, so the liabilities, for full and accurate reporting in the framework agreement, flowed down to the sub-contractors.
We tied up the timing of invoices. These include invoices our client issues to the customer, and invoices the sub-contractor issues to our client. Our client did not want to have to pay a sub-contractor’s invoice before receiving payment themselves.
Life often becomes fraught without clear rules. The customer may be late in making payment or query the goods and/or services provided by the sub-contractor. We designed a contractual system that fitted the practicalities and built this contractual system into the sub-contract.
We created a system for escalating and resolving disputes outside the court system. We adapted the framework provisions and added a layer that dealt with how the sub-contractor and our client could resolve disputes between themselves. Our client did not wish to become involved in processes over which it had little involvement. In recognition of the need for business efficiency we developed a procedure where the sub-contractor could deal directly with the customer providing our client agreed.
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