Contractor agreement for a construction subcontractor

A construction subcontract is governed by rules that do not apply to other contractor agreements: the payment and adjudication provisions the Construction Act implies into every construction contract, the deductions the Construction Industry Scheme requires, and the health and safety duties the CDM Regulations place on contractors. The agreement has to work within them, define the works and the programme, deal with the main contract above it, and set the terms on defects, retention, variations and delay that decide whether the subcontractor is paid. I draft that subcontract, for the contractor or for the subcontractor, for a fixed fee of £595, delivered in five working days. Employment status for labour-only subcontractors is checked case by case with HMRC's Check Employment Status for Tax tool, and no agreement can guarantee it.

Who this is for

Main contractors and trade contractors in England and Wales engaging subcontractors for trade packages or labour, and subcontractors who want a subcontract they can offer or a check on the one they have been sent.

What matters in a construction subcontract

The works, the programme and the main contract

The subcontract should define the works by reference to drawings, specifications and a scope schedule, state the programme and the subcontractor's obligation to proceed regularly and diligently and to keep to it, identify the main contract and say which of its terms are passed down (specifications, standards, warranties, site rules), without making the subcontractor liable for the whole of the contractor's obligations to the employer; a subcontract that incorporates the main contract wholesale imposes obligations the subcontractor has never seen.

Payment, notices and adjudication under the Construction Act

A contract for construction operations is a construction contract under the Housing Grants, Construction and Regeneration Act 1996, which implies a right to stage payments, an adequate mechanism with due and final dates under section 110, payment notices and pay less notices under section 111 with the consequence that a sum notified must be paid if no pay less notice is served in time, a right to suspend for non-payment, and a right to refer any dispute to adjudication under section 108; pay-when-paid clauses are prohibited except on the employer's insolvency. The subcontract should set out a compliant payment mechanism with dates the contractor can meet, because a mechanism that fails is replaced by the statutory scheme.

The Construction Industry Scheme and status

Payments to a subcontractor for construction operations are within the Construction Industry Scheme under Chapter 3 of Part 3 of the Finance Act 2004, with the contractor required to verify the subcontractor with HMRC and to deduct tax at the applicable rate unless the subcontractor has gross payment status; the subcontract should record the subcontractor's status and the deduction, and should reflect a self-employed engagement in substance for a labour-only subcontractor (own tools, right to substitute, responsibility for the work, no set hours beyond the programme), because a labour-only subcontractor who works under the contractor's control may be a worker or employee with rights under the Employment Rights Act 1996 and the Working Time Regulations 1998, which the CIS deduction does not settle.

Health and safety and the CDM duties

The subcontractor is a contractor under the Construction (Design and Management) Regulations 2015, with duties under regulation 15 to plan, manage and monitor its work, to comply with the construction phase plan, to provide information and to ensure its workers are competent and inducted, and the subcontract should allocate those duties, require compliance with site rules and the principal contractor's instructions on safety, and state the subcontractor's obligations under the Health and Safety at Work etc. Act 1974 for its own workers and for others affected by its work; the contractor's duties as principal contractor, where it holds that role, remain its own.

Insurance, defects and retention

The subcontract should require the subcontractor to hold public liability insurance at a stated level, employers' liability insurance under the Employers' Liability (Compulsory Insurance) Act 1969 where it has employees, and, for design, professional indemnity, with the contractor's contract works insurance covering the works; it should provide for the subcontractor to remedy defects notified during a defects period at its own cost, for a retention at a stated percentage released in stages, and for the contractor's right to set off sums due under the subcontract within the Construction Act's notice requirements.

Variations, delay and termination

The subcontract should provide for variations instructed in writing and valued by agreement or on a stated basis, extensions of time for delay caused by the contractor, the employer or events outside the subcontractor's control, the contractor's right to recover its loss where the subcontractor's delay causes it to incur liquidated damages under the main contract (with the subcontractor's exposure capped or linked to the main contract rate), termination for breach, insolvency and where the main contract is terminated, and interest under the Late Payment of Commercial Debts (Interest) Act 1998 on sums paid late.

What it costs

Consultancy or contractor agreement, £595. Drafted for your business. Five working days.

Template set for repeat use, £895. One master agreement plus a short-form schedule you can reuse for every engagement. Five working days.

Buying online forms the engagement on payment. The scope is what the consultancy and contractor agreements page describes, you accept the Terms of Service at checkout, and I email you within four working hours to get started. If you would rather ask something first, email me.

What you get

• A clear, express assignment of intellectual property to your business
• Confidentiality provisions that protect your business information
• Restrictive covenants drafted at a scope a court will uphold
• Clear treatment of status, so the arrangement is not accidentally something else
• Payment, deliverables and termination provisions that match how you work
• A reusable structure, so the next engagement costs you nothing

What is not included

• Employment status determinations and off-payroll working assessments, which need your accountant
• Tax advice
• Disputes with a contractor you have already engaged
• Immigration and right to work compliance

Questions I am often asked

We did not serve a pay less notice in time. Do we have to pay the subcontractor's application in full?

The notified sum is payable, and the subcontractor can adjudicate to recover it. The subcontract sets the notice dates so that the contractor's team can meet them; the Act fills the gap if it does not.

Our labour-only subcontractors are paid under CIS. Does that make them self-employed?

It does not. CIS is a tax deduction scheme and says nothing about employment status, which depends on how the work is organised. The subcontract reflects a self-employed engagement where that is the reality, and status is checked with HMRC's tool.

Can we make the subcontractor liable for the employer's liquidated damages?

You can pass down the exposure for delay the subcontractor causes, and the subcontract does so, but an uncapped liability for the whole project's damages is rarely accepted and may be challenged. The subcontract links the subcontractor's exposure to its own delay and caps it.

Related guidance and services

• Consultancy and contractor agreements, £595, the service this page describes
• Contract review, £495
• Employment contracts and handbooks, £595
• Reviewing a construction subcontract from a main contractor
• Purchase terms for a construction company using subcontractors

This page is general guidance for businesses in England and Wales, not advice on your own circumstances. Last reviewed: October 2026. Email geoffrey@caesar.co.uk.