subsubcontracts

Subsubcontracts are contracts under which a subcontractor assigns part of its obligations under a primary contract to another party. In effect, they create a third tier of contracting below the prime contract and the first-tier subcontract. Subsubcontracts are common in construction, information technology, and manufacturing when specialized work or capacity constraints necessitate further delegation.

The prime contract governs the overall relationship with the owner, while the first-tier subcontract defines the duties between the prime contractor and the subcontractor. The sub-subcontract binds the first-tier subcontractor to perform part of that work. Flow-down obligations are common: terms from the prime contract and the first-tier subcontract are incorporated to ensure compliance, performance standards, and risk allocation. The prime remains ultimately responsible to the owner; the first-tier contractor is responsible to the prime; the sub-subcontractor is responsible to the first-tier contractor.

Scope and risk: Subsubcontracts specify the scope, schedule, quality, safety, and warranties for the work performed by the sub-subcontractor. They often include pass-through terms on reporting, changes, and acceptance criteria. Payment flows downward along the chain, with retentions and dispute rights cascading from the owner through the prime to the first-tier subcontractor and the sub-subcontractor. If a sub-subcontractor fails to perform, the first-tier contractor bears primary risk to the prime, and delays can propagate.

Liability and remedies: Remedies may include withheld payment, back-to-back warranties, and performance bonds. Termination can occur for cause or convenience, with allocations for work in progress and for completed milestones. In regulated procurements, additional flow-down and certification requirements may apply.

Industry practice: Subsubcontracts enable specialization and scalability, allowing large projects to be partitioned into discrete tasks while maintaining overall governance through the prime contract.