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The importance of having a Subcontractor Agreement

Businesses can benefit from organising part of the work they have been hired for to be completed by an independent contractor. This is called “subcontracting”.

Subcontracting is a common way of collaborating with other businesses. The model allows businesses to increase capacity by combining resources, knowledge and talent. Rather than entering a more permanent employment arrangement, the subcontractor is engaged temporarily as a consultant.

Benefits of subcontracting

Many Indigenous businesses have the opportunity to engage a subcontractor, or to assist as a subcontractor when fulfilling Commonwealth contracts under the Indigenous Procurement Policy (IPP). The IPP sets a target for Commonwealth Procurement of Indigenous businesses. The 2020 target of awarding 3 per cent of all government contracts to Indigenous businesses annually was well exceeded within a two year period. In 2017 under the new coalition, there is a new 7 per cent target that all government contracts go to First Australian businesses.

A subcontract will count towards the IPP target if it directly relates to the goods and services being contracted by the Commonwealth entity, regardless of whether the main contract is with an Indigenous business or non-Indigenous business.

Subcontracting is a common way for Indigenous businesses to enter the government supply chain. The model can break down obstacles to entering a Commonwealth contract independently, such as extensive documentation, insurance, resources and expertise. An Indigenous business can access more work opportunities with large, more established companies and increase their presence in the market.

Legal Requirements for Subcontractors

It’s important to remember that the government imposes legal requirements on subcontracting under the Commonwealth Contracting Suite, which is the template that the government ordinarily uses to engage services of suppliers. The supplier is required to ensure that any subcontractors have the same obligations as the supplier’s obligations that are outlined in the main Commonwealth contract.

Therefore, it is best practice to have a written subcontractor agreement to ensure that legal obligations are met. It also assists with project management. This includes terms such as services to be provided, payment terms, insurance and compliance obligations and intellectual property.

This information has been adapted from the Law Way workshop materials. Please contact us for information about our next Law Way workshop, or for legal advice regarding your Subcontractor’s Agreement.

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