Subcontract Definition

A subcontract is an agreement under which a Main Contractor hires a Subcontractor to carry out part of the works. It sets the scope, price, programme and payment terms, and it is the document that turns a budget line into a commitment.

Worked example

A main contract is worth £1,800,000. The electrical package is budgeted at £255,000. After tender, the electrician is appointed on a £240,000 subcontract with 5% Retention and monthly valuations.

The saving shrinks to £5,500 once the variation is added, and it stays a forecast until the Final Account is agreed.

Subcontracts in the CVR

The CVR should show a subcontract's full committed value, not only what has been invoiced. Committed cost is the order value plus approved variations. Compare it with the budget as soon as the order is placed, and a package that is over budget shows months before the final valuations.

Beyond price, a subcontract affects cash flow through its terms:

• Retention: what you hold from the subcontractor, and when you release it.
• Payment dates: when you must pay, set against when your Client pays you.
• CIS: the deduction you make from labour, and the return you file with HMRC.
• Variations: how they are instructed and priced, since a variation instructed without agreed value is cost you carry.

In the UK

JCT and NEC both publish standard subcontract forms designed to sit with their main contracts. Many subcontracts also run on the main contractor's own terms. Whichever is used, the Construction Act applies to the payment terms, so a subcontract needs a payment mechanism with due dates and notices.

Related terms

Subcontractor, Purchase Order (PO), Framework Agreement, Retention, Variation.

Planyard's subcontractor orders records each subcontract against the budget line with its retention and variations, so committed cost is visible from the day the order is placed.