Subcontracting

Verified 27 October 2023 - Directorate for Legal and Administrative Information (Prime Minister)

Outsourcing is an operation by which a company (called originator) entrusts to another company (called subcontractor) the task of performing for it part of the acts of production and/or services for which it remains responsible. Outsourcing adapts to all business lines. It can be very useful for the growing your business.

Outsourcing allows you to perform a service that your company is not unable to accomplish on its own for example, because of a lack of time, resources or know-how.

However, delegating part of its production or performance also involves entrust part of his image to a third party.

You must be aware of the benefits and risks which accompany this practice.

Benefits

  • Strategic resource development : your time and energy are focused on high value-added missions that you are in control of. The tasks that you're less good at and that require you to put more effort into are done by the subcontractor, which is the core business of the subcontractor.
  • Access to expertise : You have access to a skill, know-how or technology that you do not possess or have limited capacity. This allows you to fill a need for specialization and adapt to technical market developments (e.g. digital switchover).
  • Responsiveness to a temporary increase in activity : in the event of a one-time or seasonal increase in demand, outsourcing can allow you to quickly increase your human and organizational resources rather than turn down a new client.
  • Reduced staff costs : By using the services of a subcontractor on an ad hoc basis, you only incur costs when necessary.

Risks

  • Dependence on subcontractor
  • Lack of coordination with subcontractor
  • Lack of sharing of know-how
  • Lack of subcontractor involvement to improve the quality of the company's product or service

Indeed, subcontracting can have a negative impact on the quality of the product or service delivered to the customer. To address this, you must implement a quality control and develop a effective communication with your partner.

The drafting of a subcontract is not mandatory, but is essential for to ensure legal certainty optimal.

The subcontract must include the following mentions :

  • Subject matter of the contract, i.e. the details of the task entrusted to the subcontractor
  • Price of service
  • Indexation clause or renegotiation clause (in the event of changes in economic conditions which would jeopardize the balance of the contract)
  • Time limits for payment and/or penalties for delay
  • Terms of amendment of the contract
  • Delivery (place of delivery, delivery times, transport and packing)
  • Penalty for non-compliance with deadlines (e.g. price reduction)
  • Control and receipt of services
  • Guarantees given to the subcontractor
  • Confidentiality of certain information transmitted to the subcontractor
  • Intellectual property where the service is protected by copyright
  • Clause on the concealed work to ensure that the subcontractor does not use the work of undeclared persons
  • Date of conclusion, effective date of the contract
  • Court having jurisdiction and applicable law, in the event of a dispute

Like a service contract, the subcontract must set out the obligations of each party and in particular those of the subcontractor.

Subcontractor

The subcontractor undertakes to carry out the work entrusted to it in accordance with the calendar execution of tasks.

He must also advisor and you inform any difficulties encountered in the course of the work.

The contract must determine whether the subcontractor has an obligation of means or an obligation of result.

If it is a obligation of means, the subcontractor is not obliged to achieve a specified result. On the other hand, he undertakes to use all the means at his disposal to execute the contract.

If it is a obligation of result, the subcontractor undertakes to achieve the result precise, concrete and determined to the contract. The stringency of the obligation is really binding on the subcontractor, but it is only justified if the fulfillment of the obligation is possible. Le the expected result must be sufficiently certain. For example, the garage owner has an obligation to repair a car entrusted to him.

Finally, if a confidentiality clause so provides, the subcontractor may be obliged not to disclose information specific to your company.

Orderer

As the client, you first commit to pay the subcontractor in accordance with the contract drawn up and in compliance with the payment conditions set out therein.

You also have a obligation to cooperate, you must make every effort to ensure that the subcontractor can carry out the tasks entrusted to it in a satisfactory manner.

In addition, for any contract greater than or equal to €5,000, you have a duty of care. In other words, you have to check that the subcontractor is fulfilling its obligations to report and pay social security contributions.

Warning  

If you don't pay the subcontractor within one month of being given formal notice, the latter may to act directly against the developer (your customer) to obtain the amounts due under the subcontract.

You are responsible to the customer (developer) misconduct by the subcontractor during the performance of the work entrusted to it.

Example :

You are approached by a client to build a house. You use a subcontractor to supply and install an electrical grid. The latter does not do its job well, the electrical network is defective and damages the building. In this situation, you are responsible for the damage to the customer.

In other words, you have to fix something you didn't do. This repair may take the form of damages paid to the customer.

Therefore, you can in turn return to the subcontractor for reimbursement of the costs incurred.