Third parties and SubcontractorsThird Parties and Subcontractors

Most contracts are made between two businesses. One that asks for a product or service and one provides it. So far, so simple. But business is not always that simple. Other people get involved in supply chains and can muddy the waters. Where do Third Parties and Subcontractors fit in you may wonder?

Third parties may have rights

Let me give you an example.

A chemical distributor agrees with a major industrialist to sell it 50,000 gallons of oil. Delivery is to be made to a petrochemical wholesaler who has orders outstanding from some of the major petrol chains.

Even though the wholesaler is not a party to the contract, it could well have a claim against the distributor if it failed to deliver. Notably, for example, if the petrochemical wholesaler went bust.

Even though third parties are not privy to the original contract, they may have a claim against you if they suffer loss as a result of its breach. This could have serious consequences if you don’t have plans to minimise the risk.

There are a number of ways to do this in the original contract:

  • We can exclude the application of the Contracts (Rights of Third Parties) Act 1999 as far as possible.
  • We could get the third party to sign-up to the contract
  • We don’t agree on anything specific with the third party but set out their rights in a schedule.

And then there’s subcontractors

A contractor is liable to the client for the actions of its subcontractors.

Here’s another example:

A builder hires an electrician to complete the electrical wiring part of a job. But it’s the builder who’s responsible to the client for making sure that the wiring gets installed – and that it works (safely!)

However, main contractors have no direct control over the work carried out, so issues such as quality and timing are common.

There are simple ways to minimise the risk:

  • We secure subcontractors’ obligations and service levels through ‘back-to-back’ agreements that mirror the requirements imposed on you.
  • If this is not possible for reasons of confidentiality, we set out subcontractors’ obligations and service levels clearly – with a requirement that they compensate you if your client claims against you for something that’s your subcontractor’s fault.

In Summary

You need protection against claims for problems that aren’t down to you.

To make sure you don’t get on the wrong side of third parties, call 01904 899794 to get started.