Subcontracting
A subcontracting clause sets out whether a supplier may delegate performance of some or all of its obligations to a third party, and on what terms.
What it does
Few suppliers do everything themselves. A software vendor uses a hosting provider. A consultancy brings in freelancers. A logistics company uses local carriers. Subcontracting is normal, and the clause regulates it rather than prohibiting it.
The basic rule in most clauses is that the supplier may not subcontract without the customer’s consent, or may subcontract freely but remains fully responsible for the subcontractor’s work as if it were its own. The second point is the important one. Subcontracting does not transfer liability. The customer’s contract is with the supplier, and the supplier answers for whoever it uses.
The clause often also requires flow-down: the supplier must impose on subcontractors the same confidentiality, data protection, security, and quality obligations that the supplier owes the customer. Where personal data is involved, the subcontractor is a sub-processor and the data processing agreement adds specific rules.
Example wording
The Supplier shall not subcontract the performance of any material part of the Services without the prior written consent of the Customer, such consent not to be unreasonably withheld. The Supplier shall remain fully responsible for the acts and omissions of its subcontractors as if they were its own, and shall ensure that each subcontractor is bound by obligations of confidentiality and data protection no less protective than those in this Agreement.
Risks for SMBs
You do not know who is doing the work. A customer that chose a supplier for its expertise may find the work handed to an unknown third party. For anything sensitive, ask for the right to know who the subcontractors are and to object to changes.
Liability gaps. If the clause does not say the supplier remains responsible, an SMB customer may find the supplier pointing to the subcontractor when something goes wrong, and the subcontractor pointing back, with no contract between the customer and the subcontractor. Always include the “as if its own” wording.
Flow-down failures on the supplier side. An SMB supplier that promises its customer strict confidentiality and data protection, but uses freelancers on a handshake, has a gap it will be liable for. Every subcontractor needs a written contract mirroring the customer terms that matter.
Consent requirements that are unworkable. A clause requiring consent for any subcontracting, read literally, may cover the supplier’s cloud hosting and email provider. Suppliers should list existing subcontractors in a schedule and get them approved up front.
Chain of title for IP. Subcontractors who create deliverables own the IP unless they have assigned it to the supplier. The supplier cannot then assign it to the customer. See IP ownership.
Common variants and negotiation points
- Materiality threshold. Require consent only for subcontracting a material part of the services, so routine suppliers and tools are not caught.
- Approved list. Attach a list of pre-approved subcontractors and agree a notice and objection process for additions, mirroring the sub-processor mechanism in the DPA.
- Flow-down scope. Agree which obligations must be flowed down: confidentiality, data protection, security, and IP assignment are the usual minimum.
- Right to information. Give the customer a right to ask for the identity of subcontractors involved in its work, and evidence of their contractual obligations.
- Termination of subcontractors. Allow the customer to require removal of a subcontractor for good reason, such as a security breach or a conflict of interest.
Related clauses
- Assignment: transferring the contract itself, as opposed to delegating the work.
- Data processing: the sub-processor rules that apply when personal data is involved.
- Confidentiality: the obligation most often flowed down.
- Liability cap: the supplier’s cap applies to subcontractor failures too.
This page is general information about a common contract clause. It is not legal advice and does not account for your jurisdiction, industry, or the specific contract in front of you. Talk to a qualified lawyer before relying on it.
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