Subcontractor Agreements UK — What to Include in Your Subcontract (2026)

Why written subcontractor agreements matter

Verbal agreements are legally binding in England and Wales — if you agree a price and scope of works over the phone and both parties proceed on that basis, you have a contract. The problem is not whether it exists, but what it says when the two sides disagree about what was agreed.

Common disputes that a written agreement prevents or resolves:

• Scope creep. The subcontractor claims extra work was included; you say it wasn't. Without a written scope, there is no reference point.
• Payment disagreements. A written agreement specifying the rate, payment schedule and what triggers each payment removes ambiguity on both sides.
• Defective work. Without a written defects clause, you may have no contractual right to require the subcontractor to come back and fix their work at their own cost.
• HMRC scrutiny. If HMRC investigates whether a subcontractor relationship is genuine self-employment or disguised employment, a well-drafted written agreement is your primary piece of evidence.
• Liability disputes. If a subcontractor's work causes damage to the client's property, the question of who is liable turns in large part on what the subcontract says.

The time to draft an agreement is before work starts, not when a problem has already emerged. Even a simple one-page document is substantially better than nothing.

The essential clauses every subcontract needs

The minimum that every subcontractor agreement should cover:

• Scope of works. Describe what the subcontractor is being engaged to do as specifically as possible. Reference drawings, specifications or schedules of work where these exist. A vague description (“first fix electrics”) leaves room for dispute; a specific one (“first fix electrics to plots 1–4 in accordance with drawing ref E-101 rev B”) does not.
• Start date and programme. When does the subcontractor start? What is the expected completion date or programme? If programme is critical to your main contract obligations, include provisions for what happens if the subcontractor causes delay.
• Rate or price. Is this a day rate, a week rate, or a fixed price for the scope? Day rates leave you exposed to overrun; fixed prices transfer risk to the subcontractor. Be explicit about which it is and what the rate includes (materials, fixings, waste disposal, travel).
• Payment terms. When will you pay? Weekly, fortnightly, on application? What documentation do you require before payment — a signed timesheet, an invoice, a completion sign-off?
• Variations. What happens when the scope changes? Specify that no variations are instructed or paid for unless you have authorised them in writing. This prevents subbies adding work to their final account that was never agreed.

Payment terms and the Construction Act

If your subcontract is for construction operations as defined under the Housing Grants, Construction and Regeneration Act 1996 (known as the Construction Act or HGCRA), the Act gives both you and your subcontractor statutory rights around payment. These rights cannot be excluded — any attempt to contract out of them is void.

Key Construction Act payment rights:

• Right to payment notices. You must issue a payment notice — or the subcontractor's application for payment acts as the payment notice — specifying the sum due. This triggers the payment cycle.
• Pay less notices. If you intend to pay less than the notified sum (for example, because you are withholding money for defects or delay), you must issue a pay less notice within the prescribed period before the final date for payment. Miss this deadline and you must pay the full notified sum — even if you have a genuine counterclaim.
• Final date for payment. The Act requires a mechanism for determining when payment is due and when it must actually be made. Standard practice in the industry is to specify 30 days as the final date for payment from the payment due date, though shorter periods are also common.
• Adjudication rights. Any party to a construction contract has the right to refer a dispute to adjudication at any time. This is a fast-track dispute resolution process — an adjudicator must reach a decision within 28 days. The decision is binding pending any final court or arbitration proceedings.

For CIS purposes, remember to specify the applicable CIS deduction rate in your agreement or accompanying paperwork: 20% for standard verified subcontractors, 30% for unregistered subcontractors, or 0% for those holding gross payment status. This must be applied to the labour element of the payment — materials are excluded from CIS deductions, so invoices should separate these clearly.

Retention: should you apply it to subbies?

Retention is a percentage of each payment withheld until agreed milestones are reached — typically 5% withheld throughout the works, halved to 2.5% at practical completion, and the balance released at the end of the defects liability period (usually 6 or 12 months after practical completion).

The case for applying retention to subcontractors:

• It gives you financial leverage to bring the subcontractor back to fix defects during the defects period.
• It mirrors what your main contractor is likely withholding from you, so you are not carrying the cost of retention yourself.
• It concentrates the subcontractor's mind on finishing properly and resolving any snagging before they consider the job done.

The case against:

• Good subbies dislike retention and may factor it into their price or prefer to work for competitors who don't apply it.
• Administering retention correctly — tracking it per job, issuing notices at the right time, releasing it promptly — creates overhead.
• There is growing legal pressure around retention abuse. The Construction Act reforms debated in Parliament would require retention to be held in a protected ring-fenced account, though this has not yet become law for domestic subcontracts.

For smaller jobs or trusted long-term subbies, many trade businesses skip retention entirely and rely on the relationship and the defects clause instead. On larger subcontract packages, retention is standard and expected.

IR35 and employment status

If your subcontractor operates through a limited company, you need to think about IR35 — the off-payroll working rules that determine whether a contractor should be taxed as an employee. This affects both what you put in the agreement and how you manage the working relationship in practice.

The three key employment status tests HMRC applies:

• Control. Who decides how, where and when the work is done? In genuine self-employment, the subcontractor uses their own expertise and determines the method of work. You specify what you want done, not how to do it. If you are directing the subcontractor on a daily basis — telling them which tasks to prioritise, which methods to use, what hours to work — that points toward employment.
• Substitution. Can the subcontractor send a suitably qualified substitute to do the work without your consent? A genuine right of substitution — where you must accept any suitably qualified person, not a specific individual — is one of the strongest indicators of self-employment. If your agreement requires the named individual to personally carry out the work, this points the other way.
• Mutuality of obligation. Is there an implied obligation on you to keep offering work and on them to keep accepting it? If a subcontractor has worked exclusively for you for an extended period with an expectation of continued work on both sides, mutuality of obligation may exist. Working for multiple clients or on clearly scoped individual projects reduces this risk.

What not to put in your agreement: do not include a clause stating the subcontractor must personally provide services if you are genuinely comfortable with substitution. This is a common drafting error that unnecessarily creates an inside IR35 indicator. Similarly, avoid wording that implies an obligation to provide a minimum volume of work or that the relationship is ongoing and exclusive.

For medium and large businesses engaging subcontractors through limited companies, you as the end client are responsible for issuing a Status Determination Statement (SDS) before the engagement starts. Small businesses (turnover under £10.2m, fewer than 50 employees) are exempt from this obligation — the subcontractor's own limited company remains responsible for assessing its own status.

Insurance requirements

Before any subcontractor starts work on your jobs, require them to provide evidence of appropriate insurance cover. At minimum:

• Public liability insurance — a minimum of £1 million indemnity limit, though £2 million or £5 million is preferable on larger projects. This covers their liability for injury to third parties or damage to third-party property caused by their work.
• Tools and equipment cover — subbies should hold their own tools insurance. If their tools are lost, stolen or damaged on your site, that is their risk, not yours. Make this explicit in the subcontract.
• Employers' liability insurance — if the subcontractor employs their own workers (rather than working alone), they are legally required to hold EL insurance with a minimum limit of £5 million. Ask for the certificate.

Request copies of current insurance certificates before work starts and diarise renewal dates. It is not enough to check once and forget — if a subcontractor's policy lapses mid-job and something goes wrong, you may find yourself holding liability you expected them to carry.

Include a clause in the subcontract requiring the subcontractor to maintain adequate insurance throughout the duration of the works and to notify you immediately if any policy lapses or is cancelled.

Liability and defects

A well-drafted subcontract should make clear:

• Who is responsible for defective work. The subcontractor is responsible for making good any defects in their own works, at their own cost, within a reasonable period after being notified. Specify this explicitly rather than relying on implied terms.
• The defects liability period. Typically 6 or 12 months from practical completion of the subcontracted works (or from practical completion of the main works, if that is later). During this period, the subcontractor must return to fix notified defects. After the period expires, their liability for latent defects continues under the Limitation Act — 6 years for simple contracts, 12 years for contracts executed as deeds.
• Limits on the subcontractor's liability. It is reasonable to limit the subcontractor's total liability to the value of the subcontract works. Exposing a sole trader subcontractor to unlimited liability for consequential losses arising from their work is both unreasonable and unenforceable in many cases. A mutual cap linked to the subcontract value is standard.
• Indemnity for third-party claims. Include a clause where the subcontractor indemnifies you against any losses, costs or claims arising from their negligence or breach of contract. This should link back to their insurance obligations.

Intellectual property and confidentiality

Most subcontract work in the trades does not raise significant intellectual property issues — but there are two areas where it is worth including express provisions:

• Client confidentiality. The subcontractor will often access your client's property and may learn details about your client's plans, budget or personal circumstances. Include a confidentiality clause requiring them to keep client information private and not to use it for any purpose other than carrying out the subcontracted works.
• Non-solicitation. You do not want subbies using their access to your clients as an opportunity to go direct. A non-solicitation clause — prohibiting the subcontractor from directly soliciting or accepting work from clients they were introduced to through your business — is common and legitimate. In the UK, these clauses are enforceable if they are reasonable in scope and duration. A clause covering 12 months after the end of the subcontract, limited to clients actually worked for (not all your clients), is generally defensible. Wider restrictions risk being unenforceable as a restraint of trade.

Non-solicitation clauses are not non-compete clauses. You cannot stop a subcontractor from continuing to work as an electrician or plumber in the same geographic area — that would be an unreasonable restraint of trade. You can stop them from cherry-picking your clients for a reasonable period after the working relationship ends.

Termination

Your subcontract should specify the grounds on which either party can terminate and what happens to money owed at that point.

Grounds for termination you should include:

• Non-performance. The subcontractor is failing to proceed regularly and diligently with the works, or has fallen so far behind programme that completion by the agreed date is no longer possible.
• Insolvency. Automatic right to terminate if the subcontractor becomes insolvent, enters administration or ceases trading. This is critical — you do not want to be owed retention or paying toward a subcontractor who will never finish.
• Safety breach. The subcontractor is persistently breaching site safety rules or CDM obligations. Construction sites carry serious H&S responsibilities; you need the ability to remove a contractor who creates risk for others.
• Material breach. A catch-all for serious contract breaches, typically after written notice giving the subcontractor an opportunity to remedy.

On termination, specify: what work in progress is assessed and paid for, whether retention is released or forfeited, and who takes responsibility for making good any unfinished or defective work. Without clear termination provisions, you may find yourself in a dispute about how much is owed even after the relationship has broken down.

Template vs bespoke agreement: what to use in practice

The construction industry has well-established standard form contracts:

• JCT Minor Works Building Contract and the JCT Short Form of Sub-Contract (ShortSub) — widely used for smaller domestic and commercial jobs. Written for a building contract context rather than a specialist trade subcontract, but adaptable.
• NEC4 Short Contract — favoured on public sector and infrastructure projects, increasingly used in the private sector. More collaborative and process-driven than JCT, but requires familiarity with NEC terminology and procedures.
• FMB (Federation of Master Builders) and trade association templates — simpler one- or two-page agreements designed for domestic trade work.

In practice, most small trade businesses use none of the above. They either use a letter of intent with a scope and price attached, or no written agreement at all. A simple purpose-drafted letter agreement — two to three pages covering the clauses described in this guide — is substantially better than relying on a standard form you don't understand or no agreement at all.

When to use a solicitor:

• Subcontract packages worth more than £20,000–£25,000.
• Subcontracts where you are passing down onerous main contract obligations (liquidated damages clauses, programme obligations, fitness-for-purpose warranties).
• Long-term supply or maintenance arrangements.
• Any situation where the subcontract includes unusual risk allocation — for example, the subcontractor taking on design responsibility.

For smaller, straightforward jobs, a clean template that you understand and apply consistently is far more valuable than a complex document you pull out once and never update.