METS Practical Advice: Key Clauses to Consider in Subcontractor Agreements
There are a number of reasons why a Mining Equipment, Technology, and Services (METS) company may need to subcontract. With tight deadlines, a METS company may need additional manpower to get a project over the line. Alternatively, it may be simply more practical or economically feasible for a subcontractor to take charge of a specific part of a project, such as the installation of equipment or provision of a service (for example, IT assistance). Whatever the reason, it is important that the company subcontracting out work is able to ensure that the agreement being used is able to protect their position, while at the same time ensuring a positive outcome with the subcontractor. With all the initial hard work of closing the deal with the client finished, there is nothing worse than for all this to come undone simply because of substandard work by a third party. In a previous post, we discussed in general terms the overall role and importance of subcontractor agreements for Mining Equipment, Technology, and Services (METS) companies. In today’s post, we will give an explanation for some of the key clauses that should be present in any well-drafted subcontractor agreement.
What should be included in a subcontractor agreement?
At the most basic level, a subcontractor agreement will set out the terms of the relationship between the company and the subcontractor, including the rights, responsibilities, and obligations between the parties. General processes such as payment, deliveries, deadlines, fees and invoicing procedures will also need to be included. However, given the complex needs and requirements of METS companies, it is highly unlikely that such simple clauses will be sufficient, and most probably a number of other clauses will have to be inserted to ensure the agreement is practical and workable. These clauses include:
- Confidentiality: Given that the types of projects that METS companies are involved in will often be of a strictly confidential nature, it is important that METS companies protect not only themselves but also their client when subcontracting out work to a third party. This clause needs to outline the terms upon which potentially business-sensitive information will remain privileged and private between the parties. Additionally, it should set out the time period for how long the information is to remain confidential, and the (preferably limited) circumstances under which confidential information may be divulged.
- Intellectual property: Because of the nature of work that METS companies perform, it is very common that there will be a need for an intellectual property clause. Will the subcontractor need to use the contractor’s technology or intellectual property to carry out the agreement? What happens if a subcontractor creates a new patentable technology or process in the course of fulfilling the agreement? It is critical that METS companies ensure they protect their intellectual property, as it not only protects their overall position but will also help to avoid any costly disputes further down the line.
- Restriction on further subcontracting: What happens if your company has taken the time to carefully select a subcontractor to complete work on an important project, only to discover after the fact that they will themselves be further subcontracting out work to a questionable third party? It is important that METS companies are able to control standards and quality of work as projects will often be high-profile or involve expensive clients. Given this, most METS companies will look to restrict or prevent altogether a subcontractors’ ability to further subcontract work.
- Dispute resolution: Sometimes things may not go to plan and in the course of any business conflicts can arise. Particularly in situations like those facing METS companies, where they need to report back to a client, a strict step-by-step process needs to be in place in order to deal with such disputes efficiently to allow the parties to resume the completion of the agreement as quickly as possible.
- Non-compete: There are a wealth of reasons why a METS company needs to include a non-compete clause in any subcontracting agreement. Regularly, a subcontractor will pick up additional work while completing the initial agreement, with the potential arising for this to impact on the initial agreement. This can be because the subcontractor simply does not have the resources to compete for multiple projects at once, or perhaps a conflict of interest may arise with the other contractor. Additionally, it is possible that a METS company’s subcontractor will be privy to customers and clients list, suppliers, employees and other business contacts.
- Workplace health and safety: Given the strict regulations in Australia and overall culture within the industry promoting workplace health and safety (WHS), it is important that potential contracts effectively manage and set standards for compliance with the relevant WHS legislation (keep in mind that the laws vary in each state and territory). Subcontractors have to take reasonable care for personal well-being and safety of their workers, as well as ensuring that no one else is harmed by the actions of these workers.
Subcontractor agreements are highly technical legal documents, and for this reason while often METS clients will attempt to implement standard-form documents for each new subcontractor as a way to save time and costs, as best practice a legal expert should always at least review a document to make sure all the key clauses are present and effective for the specific circumstances of the project. Not every project is the same, and for the same reason not every legal contract will be the same. Getting an expert’s opinion and knowledge can smooth out the process for METS companies and ensure that they are able to finish a project on time, and simply “get it right”.
Harris Gomez Group is an international law firm with offices in Santiago, Bogotá, and Sydney. Our firm has been working with mining equipment, service, technology providers both in Australia and internationally for 16 years. We find that our clients appreciate that we understand the industry, provide fixed pricing, and take the time to learn our clients business.
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