Contractors vs Sub-Contractors: What’s The Difference?

As a small business owner in New Zealand, understanding the distinction between a contractor and a sub-contractor is crucial. Whether you’re a client, an independent contractor, or a sub-contractor, recognising these differences ensures you can properly adhere to your rights and obligations under New Zealand law.

Engaging a contractor or sub-contracting work can be highly beneficial for your business, particularly when you require additional support or specialised skills temporarily.

The term ‘contractor’ generally refers to a broad category of individuals and businesses that operate as independent contractors or sub-contractors.

It’s also vital to distinguish between a contractor and an employee, as this affects your working relationship and misclassification can lead to significant legal repercussions in New Zealand.

What’s The Difference Between Contractors And Subcontractors?

An independent contractor is either an individual or a company that works directly with the client (‘principal’) to supply goods or perform services under a contract, such as a Contractor Agreement.

Conversely, sub-contractors are typically hired by an independent contractor to assist in fulfilling a contract they have with the principal. Sub-contractors often focus on a particular aspect of the work that the independent contractor has agreed to complete.

A sub-contractor has a contract with the independent contractor, not with the principal. Thus, the independent contractor receives payment from the principal, and the sub-contractor is paid by the independent contractor.

The above example underscores the importance for independent contractors and sub-contractors to be cognisant of the relevant contracts.

Are You Allowed To Sub-Contract Work?

Before sub-contracting any work, it’s imperative to review your Contractor Agreement for clauses specifically addressing sub-contracting.

Some clients may prefer not to involve sub-contractors or may want to approve any sub-contracting decisions. These preferences are typically reflected in the Contractor Agreement, which may stipulate:

• You can sub-contract any part of the work;
• You cannot sub-contract any part of the work; or
• You must not sub-contract any part of the work without obtaining prior written consent from the client.

If you anticipate the need for a sub-contractor, it’s advisable to discuss this with the client before signing the contract and commencing work.

Consider the Contractor Agreement with the principal as the ‘Head Contract’, which will dictate your interactions with sub-contractors and influence any subsequent contracts and agreements.

What Is A Sub-Contractor Agreement? When Do You Need One?

A Sub-Contractor Agreement is a contract between the contractor (e.g., Jordan) and the sub-contractor (e.g., Fatima).

It outlines the service scope and quality, the relationship terms, and other business processes (e.g., fees, payment, confidentiality, ownership of IP, and termination).

Having a Sub-Contractor Agreement is crucial when engaging sub-contractors to ensure timely delivery of the correct goods or services, protect your business assets and IP, and prevent disputes. It also safeguards your reputation by guaranteeing that sub-contractors meet the standards promised to the principal in the Head Contract.

Referencing the Head Contract in the Sub-Contractor Agreement can align both parties on the required work and bind the sub-contractor to the Head Contract’s terms, avoiding misunderstandings or inconsistencies.

For more information on engaging sub-contractors, check out our comprehensive guide here.

Who Is Responsible If Something Goes Wrong?

If Jordan inspects Fatima’s work and deems it substandard, knowing Daniel will not be satisfied with the plumbing quality, Jordan is likely to be held accountable for the work performed on his behalf.

Typically, the independent contractor is responsible for any defects in the sub-contractor’s work. However, a well-drafted Sub-Contractor Agreement can ensure the sub-contractor is liable for the quality and timeliness of their work. If changes are made, it’s wise to grant certain rights, such as time extensions for work completion.

Therefore, it’s essential to engage trustworthy sub-contractors and foster a strong, positive relationship with them. This approach helps maintain an excellent reputation with clients and other contractors who may consider collaborating with you in the future.

Want To Find Out More?

Ensuring you have a well-drafted Contractor Agreement or Sub-Contractor Agreement is vital for protecting your business when engaging independent contractors or sub-contractors and providing goods and services to clients in New Zealand.
Whether you need to review existing contracts or require assistance drafting new ones, Sprintlaw has a team of friendly and experienced lawyers ready to help! Feel free to contact us at 0800 002 184 or [email protected] for a free, no-obligations consultation.

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