Last edited 27 Dec 2020

Subcontract procurement

The classic 19th-century definition of a contract is 'a promise or set of promises which the law will enforce' (ref. Pollock, Principles of Contract 13th edition). That is, there is reciprocity of undertaking passing between the promisor and the promisee.

In the construction industry, the main contract is typically the tier 1 contract between the client and the main contractor.

A subcontract is a contract that involves a subcontractor undertaking part of the main contract on behalf of the main contractor. This is generally a tier 2 contract.

Subcontracts normally involve work of a specialist nature carried out by specialist subcontractors Subcontracts on a project can encompass many trades but commonly include:

Procurement is the process of purchasing goods or services. Procuring subcontractors is the process by which these various specialist trades are brought into a project.

Traditionally there have been three main types of subcontractor:

However, on large or complex projects, the work will cascade down the supply chain to a plethora of subcontractors, sub-subcontractors, and so on.

One of the problems in the construction industry is that the first and second tier of the supply chain sign up to fairly onerous agreements but as the chain develops, so the contractual liabilities decrease until suppliers at the end of the chain are often not locked in at all.

In recent years larger companies offering continuity in construction have taken an increasing interest in establishing relationships beyond direct, first tier suppliers. Framework contracts and partnering agreements have pioneered this approach, encouraging the involvement of selected suppliers at relatively early stages of projects while offering continuity of work.

An integrated supply team is one that involves the integration of the complete supply chain involved in the delivery of a project. Under this route, the entire supply team may be appointed after the project brief has been prepared, often under just one contract rather than separate contracts with each individual company.

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