VLP Legal Press #20
Using Sub-Providers in Cambodia: Sub-Contracting – What Do You Need to Know?
Many businesses take on contracts to provide certain services or works but then hires another person (a subcontractor) to deliver part or all of that job. But doing this can lead to legal and operational risks.
What are the risks?
1. Quality and Performance Issues
Your business remains responsible for the final output of the job, even if the work is done by someone else. Poor quality or mistakes by the subcontractor can still lead to claims by your customer against you.
2. Delays
If the subcontractor delays and misses deadlines, your business may be in breach of contract toward your customer.
3. Legal Liability/Breach of Contract
Under Article 384 of the Cambodia’s Civil Code, a contractor, the party that signed the contract with the customer, remains responsible for fulfilling the contract.
This means even if the customer knows you are hired a subcontractor, in practice, you can still be liable for mistakes made by your subcontractor because they are working under your responsibility.
4. Defects and Warranty Claims
If defects appear, your business is still responsible to repair or compensate the customer, even when the defect was caused by the sub-provider.
5. Insurance Gaps
In certain industries, especially construction, subcontractors often don’t have enough insurance coverage. This can make it difficult to claim compensation from them if any damage occurs, especially if your customer seeks compensation from you due to the subcontractor’s mistakes.
How to manage the risks?
1. Use Clear, Written Sub-Contracts
Define the scope of work, standards, inspection rights, delivery timelines, and payment terms.
2. Include Protective Contract Clauses
Add indemnity clauses, warranty obligations, and clearly defined liquidated damages for delays.
3. Require Proper Insurance
Ensure subcontractors maintain adequate insurance.
4. Monitor Performance
Use progress reporting, supervision, and regular checks on progress and quality.
5. Maintain Strong Termination Rights
When a subcontractor repeatedly fails to perform, the contract should allow you to terminate or replace the subcontractor quickly which having to pay them compensation.
Why people still choose to sub-contract?
Sub-contracting can be an effective way to run your business because:
- it helps you grow by hiring subcontractors for work your team doesn’t specialize in;
- it lowers fixed costs since you don’t need to build and maintain a large permanent team;
- it transfers some risks to the subcontractor.
This is for general reference only and does not constitute legal advice. For further guidance, contact us at: