A Subcontractor Agreement is a legally binding contract used in the United Kingdom under which a main contractor engages a subcontractor to carry out a defined portion of the construction or engineering works on a project. The subcontractor is engaged as an independent contractor — not as an employee — and is responsible for its own tax affairs, National Insurance contributions, and compliance with the Construction Industry Scheme (CIS) administered by HMRC.

In England and Wales, subcontractor agreements are primarily governed by the Housing Grants, Construction and Regeneration Act 1996 (HGCRA 1996), as significantly amended by the Local Democracy, Economic Development and Construction Act 2009 (LDEDCA 2009). The HGCRA 1996 introduced fundamental rights in relation to payment and dispute resolution for all parties in the construction supply chain: the right to stage payments where the contract period exceeds 45 days; the obligation to issue payment notices and pay less notices; and the statutory right to refer disputes to adjudication at any time.

Health and safety obligations are imposed by the Construction (Design and Management) Regulations 2015 (CDM 2015), which place duties on clients, designers, principal contractors, and subcontractors alike. The CDM 2015 require construction projects involving more than one contractor to appoint a Principal Contractor with overall responsibility for site-wide health and safety coordination.

The Construction Industry Scheme (CIS), introduced by Part 3 of the Finance Act 2004, requires main contractors to deduct tax at source from payments to subcontractors for construction work, unless the subcontractor holds gross payment status. The deduction rate (0%, 20%, or 30%) is determined by HMRC verification.

Our UK Subcontractor Agreement template is drafted for use in England and Wales and covers all key legal requirements, including scope of works, programme, price, interim payments, CIS deductions, retention, defects liability, insurance, health and safety obligations, independent contractor status, and statutory adjudication rights.

A formal, written Subcontractor Agreement is essential whenever a main contractor engages a subcontractor to carry out any part of a construction project. Proceeding on the basis of an oral agreement or a purchase order alone creates significant legal risk for both parties, particularly in relation to payment rights, variation claims, defects liability, and health and safety responsibilities.

A Subcontractor Agreement is needed in the following common situations: a main contractor engaging a specialist trade subcontractor (such as an electrician, plumber, groundworker, or steelwork installer) to carry out works forming part of a larger building project; a principal contractor appointed on a domestic extension or refurbishment engaging a specialist to carry out the structural, electrical, or roofing works; a civil engineering contractor engaging a subcontractor for earthworks, piling, or road surfacing; and a property developer engaging subcontractors directly for individual trades across a residential development.

A written agreement is particularly important because the HGCRA 1996 imposes mandatory terms on construction contracts. If a contract fails to include compliant payment provisions, the Scheme for Construction Contracts (England and Wales) Regulations 1998 (as amended) will automatically apply in their place. Having a properly drafted written agreement allows the parties to tailor the payment, notice, and dispute resolution provisions within the statutory framework, rather than relying on the default Scheme terms.

A Subcontractor Agreement is also important for CIS compliance. HMRC requires main contractors to verify subcontractors before making the first payment and to deduct tax at the appropriate rate. A written agreement that records the verification reference number and specifies the CIS deduction basis provides valuable evidence of compliance in the event of an HMRC audit.

For projects notifiable under the CDM 2015 (those expected to last more than 30 working days with more than 20 workers simultaneously, or exceed 500 person-days), the Main Contractor or Principal Contractor must ensure that a Construction Phase Plan is in place before construction begins, and the Subcontractor’s obligations under CDM 2015 should be clearly set out in the subcontract.

A compliant and effective Subcontractor Agreement for use in England and Wales should address several key provisions.

The scope of works clause precisely defines what the Subcontractor is required to do. It should identify the specific trade or works package, reference any drawings or specifications, state the standard of workmanship required (e.g., compliance with BS 7671 for electrical works or BS EN 1090 for structural steelwork), and specify any materials or plant the Subcontractor is required to supply.

The programme clause specifies the commencement date and the completion date, and requires the Subcontractor to proceed regularly and diligently. It should address extension of time provisions (allowing the Subcontractor to apply for additional time where delayed by the Main Contractor’s instructions, variations, or force majeure events) and the consequences of failing to complete on time.

The price and payment clause is regulated by the HGCRA 1996 and must provide for a mechanism to determine the sum due at each payment due date, a final date for payment, and the right to issue payment notices and pay less notices. The clause should also address VAT and specify that payments are exclusive of VAT.

The CIS clause should confirm both parties’ registration status, record the HMRC verification reference, and specify the deduction rate applicable. It should require the Subcontractor to notify the Main Contractor of any change in CIS status.

The retention clause, if included, should specify the retention percentage (typically 3–5%), the conditions for release (e.g., 50% on practical completion, 50% on expiry of the defects liability period), and the interest payable if retention is not released on time under the Late Payment of Commercial Debts (Interest) Act 1998.

The defects liability clause specifies the period during which the Subcontractor is responsible for rectifying defects (typically 12 months from practical completion) and the Main Contractor’s right to engage others to make good defects at the Subcontractor’s cost if it fails to do so.

The insurance clause should require the Subcontractor to maintain adequate public liability insurance (typically £2m–£5m per occurrence), employer’s liability insurance under the Employers’ Liability (Compulsory Insurance) Act 1969, and any professional indemnity insurance where the works involve design.

The adjudication clause confirms the statutory right of either party to refer disputes to adjudication under section 108 of the HGCRA 1996.

The governing law and jurisdiction clause should specify England and Wales.