In most organisations we work with, subcontracting is a topic handled by procurement, with processes and resources that allow them to run the entire procurement cycle. Under this cycle, once the contract is signed, the buyer's involvement doesn't stop: performance indicators, supplier reviews, audits and supplier quality assurance schemes structure genuine follow-up, sometimes with sophisticated tools. This procurement cycle, more or less effective depending on the organisation, allows the procurement function to contribute to the company's added value.
There is, however, a blind spot when it comes to monitoring the performance of supplier contracts, at least in the sense practised in contract management, because the monitoring carried out by buyers measures supplier performance far more than it tracks the exercise of its rights and obligations. It only checks at certain points that the service remains in line with what was contracted, and that the contract evolves when the scope, schedule or performance conditions change. Confusion between the two is common, and we regularly come across buyers convinced they are doing contract management simply because they run performance reviews.
This gap is precisely the playing field this article is about. Contract management is a recent function which, like many others, began on the client side: holding the "main contract" against the client-side project owner or the ordering party. Gradually, the discipline has moved down the contractual chain to apply to suppliers and subcontractors, what English speakers call supplier contract management. This shift is not a passing trend. When you look at where difficulties on a contract originate, a subcontractor is very often involved: an undeclared worker turned away from a site, a payment that blocks an entire chain, a scope changed without a contract amendment formalising it, claims and requests (additional works, delays) that follow no contractual process, or cascading failures that no one saw coming. The reality isn't that subcontracting is poorly bought or poorly contracted, it's that in practice it is rarely managed contractually.
Subcontracting: a few reminders
Subcontracting is distinct from two related concepts it is sometimes confused with: supply and joint contracting.
Starting with supply, and without going into too much detail (this will be the subject of a dedicated article), the main difference between a supplier and a subcontractor is that the latter is not tasked with delivering an off-the-shelf product: the subcontractor carries out part of the contract itself, using its own resources and under its own responsibility.
As for the boundary with joint contracting, it is even simpler to grasp, since a subcontractor (unlike a joint contractor) has no contractual relationship with the client-side project owner and only contracts with the main contractor. It is this intermediate position, an actor working for the end client without having a contract with them, that makes this subject so specific.
French law, as early as 1975, built a highly protective regime for subcontractors, whose two pillars are the obligation to have them approved by the client-side project owner and the guarantee of their payment. In public procurement contracts, this takes the form of direct payment, whereas in private contracts, it is more a matter of payment delegation or a bond. While this regime can sometimes be seen as cumbersome, due to its administrative burden, the logic behind the text is clear: subcontracting creates a three-way relationship in which the (theoretically) most exposed link is the one that has not signed with the party making payment. The entire contractual mechanism that follows from this is designed to secure that link, and by extension the whole of the contract's performance.
Why does contract management involvement create added value?
While subcontracting is a practice that has always existed, three "recent" developments explain why contract management should get to grips with subcontracting agreements in order to create added value.
Access to financing and cash flow
The first development, admittedly cyclical, is the increased pressure on cash due to the global economic situation, and particularly the rise in interest rates in recent years. In short, money costs more and cash flow facilities are harder to come by. As a result, payment terms, retentions, guarantees, advances and their reimbursement now occupy a more central place than before, forming a tangle in which paying the subcontractor is both a legal obligation and a cash-flow variable for the main contractor.
In practice, a risky payment schedule doesn't just create disputes, it can bring a project to a halt, and this cuts both ways. On one hand, the cash flow of a second or third-tier subcontractor is rarely solid enough to absorb a delay that the main contractor could have withstood. On the other hand, a megaproject's site can grind to a halt for several months, at considerable cost, due to the failure of that same third-tier subcontractor.
The certainty of uncertainty
The second development is the uncertainty in which projects are now carried out. Between the cost of materials, the availability of skills, regulatory changes and geopolitical risks: performance conditions are moving faster than the contracts governing them.
This instability calls for contractual agility that cannot be improvised. It requires anticipation, and therefore continuous monitoring, to work out what a contract allows, what it prohibits and what will need to be renegotiated. It demands not only more agile contracting, but also closer management, increased oversight, and a stronger relationship with the supplier in order to work together on solutions to the uncertainties that arise throughout a project.
A different balance of power
The third development is the position now held by subcontractors themselves in major projects. Supply chains increasingly include critical players, holders of specialised know-how, rare production capacity, or a position on a component that no one else can supply. These subcontractors are difficult to replace, and they know it.
The contractual balance of power is sometimes reversed compared with the classic model of a dominant ordering party, and the relationship can no longer be held together by price and penalty discipline alone. We are now far removed from the era of the big bad buyer dictating terms to small suppliers. The relationship needs to be managed over time, with a fine understanding of the mutual commitments involved, of what each party can genuinely demand from the other, and of what it has an interest in preserving.
These three developments converge towards the same conclusion: a subcontracting agreement is not a document that is negotiated, signed and then administered. It is a living object, linked to the main contract, which needs to be managed as such.
Three key moments in the subcontracting agreement lifecycle
Rather than going through the entire contract lifecycle, we have chosen to identify three moments where contract management brings particular added value to subcontracting.
The negotiation phase
Very often, the buyer starts from a standard contract or its general purchasing conditions, which it negotiates with the supplier, mainly on price, penalties, and so on. Other stakeholders frequently get involved on technical scope, or the legal department on a few sensitive clauses, such as liability or intellectual property.
Each party handles its part conscientiously, but the coordination between these different parts is often lacking. To illustrate this, what we often observe in these complex contracts is a reference in the general conditions to a section of technical specifications that doesn't exist, a buyer negotiating general purchasing conditions with a subcontractor based on a playbook without precisely knowing the provisions of the main contract they are supposed to pass down, or conversely, a negotiation that gets stuck on points which, given the project schedule on the client side, have no impact on the critical path and on which there was in fact genuine room for manoeuvre.
At this stage, the contract manager not only manages these interfaces between internal stakeholders, but also brings a view of the project as a whole, and therefore clarity on the real points of negotiation.
The launch phase
The launch (or kick-off) is, in particular, the moment when what has been negotiated regarding payment, the payment schedule and guarantees must be put into practice. As we saw earlier in this article, there are mechanisms such as direct payment in public procurement contracts, or payment delegation or a bond in private contracts, which need to be implemented in practice once the contract is signed. Bank guarantees are also very frequently added, with their cost, their relationship with the main contract, and their release terms, all of which need to be managed not only when put in place but also when they expire, are renewed and/or updated.
From the outset, we sometimes observe, on these clauses, standard drafting that remains disconnected from the reality of the contract and its performance. For the contract manager, the launch phase involves checking that all this works both ways: that guarantees are actually issued, that advances and the payment plan are respected, and that the expected bonds have indeed been received. When properly managed, these mechanisms are not a constraint but a lever, securing the relationship and preventing payment from becoming the starting point for a claim.
Performance monitoring
Here we are talking about contract management & administration in the strict sense, and this is where moving back and forth between the client side and the supplier side really comes into its own. Through its involvement in the main contract, the contract manager sees deviations, delays, planned acceleration measures, and HSE or quality events, and is in a position to assess what each of these means for subcontractors, and vice versa.
This interface role between the two contractual tiers is an added value specific to contract management, on one condition: the supplier relationship itself remains held by the buyer. The contract manager keeps the contract alive, but does not take the place of the person holding the relationship.
Who does what? Watch the interfaces
First, a reminder: in our view, the supplier relationship should remain the buyer's responsibility, as they understand it better than anyone. More generally, there is no single model for dividing roles: it is up to each organisation to build its own responsibility matrix, depending on its culture, the stakeholders involved and its sensitivity to contractual matters.
In our view, the supplier relationship should remain the buyer's responsibility, as they understand it better than anyone.
One trend, however, clearly emerges from what we observe: procurement manages everything from the consultation and tender through to the supplier relationship, legal secures the contract and steps in should disputes arise, and project management uses the subcontractor as one of its project resources.
Between these three areas, there are numerous interfaces, and many issues end up falling in between: consistency between the main contract and the downstream contract, tracking changes, formalising deviations, and maintaining mutual obligations over time. This is where the contract manager has, at the very least, a curative role to play, by being present at these interfaces.
In the most mature organisations, this role becomes preventive: rather than simply filling gaps, the contract manager puts in place what did not previously exist, such as a deviation log or a risk and opportunity matrix for critical suppliers.
A playing field contract managers need to get to grips with
The title of this article mentions a playing field, and the word is not chosen at random.
Subcontracting is not a threat to be contained, nor a source of risk, but a space in which contract management can bring genuine added value in the service of projects. The gains are visible and measurable: fewer halted sites, more visibility over additional works, greater compliance in claims, and above all a more harmonious chain between the obligations a company holds towards its clients and those it passes down to its suppliers.
It is at this interface between the client and the subcontractor, when it lacks proper monitoring, that many lost margin points are hiding. But far beyond preserving value through a defensive approach, the supplier contract manager can also generate value with a subcontractor. Indeed, in a world where critical subcontractors are becoming scarcer, knowing how to manage these contracts over time means securing access to skills and capacity that competitors do not have. This is no longer just protection, it's performance.