Subcontracting

Subcontracting is the practice whereby a prime contractor engages another person or legal entity to perform part of the obligations or work under its contract. The prime contractor holds the contract with the buyer. The subcontractor carries out a portion of that work under a separate agreement with the prime.

NATO draws the same line in its procurement policy: the prime contractor has the direct contractual relationship with the procurement authority, while the subcontractor performs portions of the contract without a direct relationship with that authority. In Canadian federal contracting, the rules on subcontracting come mainly from the clauses in each contract, supply arrangement or solicitation. Suppliers need to read those clauses closely before they commit to a teaming or subcontract arrangement.

How NATO defines a subcontract and a subcontractor

NATO's contract terms define a subcontract as any agreement made by the contractor with a third party to fulfil part of the contractor's obligations. It can take several legally binding forms, including a contract or a purchase order. The definition appears in the NCIA Contract General Terms and Conditions.

The NATO procurement policy sets out the relationship between the parties. NATO's headquarters general terms and conditions add that the supplier may place the subcontracts it considers necessary to meet the contract requirements. The supplier remains responsible for administering and performing those subcontracts.

Consent and certification under PSPC and CanadaBuys

Public Services and Procurement Canada (PSPC) supply arrangements generally require the contractor to obtain the contracting authority's written consent before subcontracting any part of the work, unless the contract specifically authorizes it. This appears in the clauses for ProServices, the Solution-Based Supply Arrangement and the Professional Audit Support Services supply arrangement.

CanadaBuys describes the mechanism. A contractor uses the permission-to-subcontract process to obtain buyer consent, then certifies that the subcontract follows the same conditions as the main contract. The process is set out in the CanadaBuys contract management guidance on subcontracting.

The Solution-Based Supply Arrangement clauses contain exceptions. Standard off-the-shelf purchases, and standard articles or materials ordinarily produced in the normal course of business, may be subcontracted without prior consent. Other subcontractors generally must be bound by conditions compatible with, and no less favourable to Canada than, the conditions of the main contract.

Subcontracting in defence contracts and the Defence Production Act

The Defence Production Act defines a defence subcontract broadly. It covers a contract or arrangement to perform all or part of the work, service, article or material required for another defence contract. The definition also reaches certain arrangements where payment depends on another defence contract, and services related to soliciting or negotiating such contracts.

CanadaBuys identifies defence contracts and defence supplies as subject to the Act. It also says the applicable defence contract clause must be included in the contract, as described on the defence contract and defence supplies page.

Defence requests for proposals published on CanadaBuys follow a two-part approach. The contractor may subcontract goods or services customarily subcontracted in its business. Other subcontracting needs prior written consent, and the contracting authority may ask for particulars of the proposed subcontract. One defence RFP for rear axles includes this wording.

The prime contractor stays responsible

Consent does not move responsibility. PSPC clauses state that even where Canada consents to a subcontract, the prime contractor remains responsible for performing the contract, for matters done or provided by the subcontractor, and for paying the subcontractor. Canada does not become liable to the subcontractor.

The defence solicitation clauses say the same thing. Subcontracting does not relieve the contractor of its contractual obligations, and it places no liability on Canada toward the subcontractor. The contractor must also bind the subcontractor to the applicable contract conditions.

What subcontracting means for a supplier bidding on Canadian public contracts

• If you are the prime, check the contract clauses for consent requirements before you name or engage a subcontractor, and plan for the permission-to-subcontract process on CanadaBuys.
• Write the contract conditions into every subcontract, so they are compatible with, and no less favourable to Canada than, the main contract.
• Expect to carry the performance risk and the payment obligation for your subcontractors, because Canada takes on neither.
• If you are a smaller business, subcontracting can be a route into government work. PSPC identifies it as one way to access smaller contracts, depending on your capacity, on its low-dollar-value opportunities page.