Subcontracting in major technology services deals—the contract process
Produced in partnership with Pillsbury Winthrop Shaw Pittman LLP

The following TMT practice note produced in partnership with Pillsbury Winthrop Shaw Pittman LLP provides comprehensive and up to date legal information covering:

  • Subcontracting in major technology services deals—the contract process
  • The prime/subcontractor model
  • Choosing a subcontractor
  • Involving the subcontractor in the contracting process
  • Starting point for the subcontract
  • Customer’s approval rights
  • Flow down provisions
  • Charges
  • Subcontractor terms to incorporate into the prime contract
  • Timing of completion

Subcontracting in major technology services deals—the contract process

The prime/subcontractor model

In order to provide a full range of IT services to their customers, technology service providers may need to appoint other specialist suppliers to supplement their service offering. In this situation, the service provider is often referred to as the prime contractor and any additional suppliers that are appointed by the prime contractor to provide a part of the contracted-for services are known as subcontractors.

With a prime/subcontractor model, the prime contractor has contractual, financial and operational responsibility for the provision of the services to the customer under its agreement with the customer (the prime contract) regardless of whether the services are performed by the prime contractor or by a subcontractor. This means that where the act or omission of a subcontractor results in a contract breach and damages result, the customer will be entitled (subject to applicable contract terms) to bring a contractual claim against the prime contractor for the damages suffered by reason of the subcontractor’s default. Because of this, the prime contractor often looks to charge the customer a risk premium in addition to the overhead and profit margin which it adds to the subcontractor’s charges.

Choosing a subcontractor

Prior to selecting a subcontractor, the prime contractor should carry out due diligence by reviewing the range of service offerings available in the market in order

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