WA Contractor and Company Billing - Is It Legal?

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David_Hughes

Member
11 March 2015
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Is it legal under commercial law for a company to sub-contract to another contractor and charge costs + 15%, where in actual fact, they charge the rates at which another more expensive contractor would have charged?
 

Sarah J

Well-Known Member
16 July 2014
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Melbourne, Victoria
Hi David,

Just to clarify, if contractor A charging the client $X and sub-contracting the actual work to contractor B (making a profit in process), and $X is higher than market contract rate for this kind of work?

If my understanding is correct, then yes, price is free for the parties to decide. If a contractor charges too high, or if they wish to sub-contract and the other side does not agree, then it's a matter for negotiation.

The contractor should not do anything that is not agreed upon or expressly prohibited in the independent contact agreement. So, if the agreement states that only the contractor (or an employee of the contractor's firm) is to perform the services, then they should not be sub-contracting this out without approval from the client.
 

David_Hughes

Member
11 March 2015
2
0
1
Hi Sarah,
When the contract was signed, costs were based on Service provider A's billing charges + 15%.
The client is paying this amount, however we are using Service provider B which is substantially lower in cost to us, but billing at Service provider A's prices. It doesn't feel right to me.
Regards,
Dave
 

Rod

Lawyer
LawConnect (LawTap) Verified
27 May 2014
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www.hutchinsonlegal.com.au
Sarah is correct. You asked a legal question. This is different to ethical or moral considerations when other factors could also come into play before a judgement on moral ethical grounds can be made.

I should point out that most large old corporations got where they are because of dubious ethical and moral practices.
 

Sarah J

Well-Known Member
16 July 2014
1,314
251
2,389
Melbourne, Victoria
Hi David,

Whilst it may not feel right to you, it really does depend on what you contracted with service provider A.

Therefore, what does your service contract say about:
  • Who exactly is to provide the services?
  • If the contract is silent on this, does it expressly prohibit service provider A from sub-contracting out?
If not, then unfortunately, they are not in breach by sub-contracting to service provider B to actually do the work. If you do not pay the agreed fee, however, then you will be in breach of the contract. It may not seem fair in hindsight but this is one of the risks of not properly negotiating a contract (or having a lawyer read through the service agreement).

A responsible service provider might notify you that they intend to contract the work to another person and either charge you a lower price or seek your consent before doing so. However, this is only good practice and not legally required.

Have you tried speaking with service provider A and telling them you do not wish them to sub-contract the work and rather, wish for them to do this work? If they are considering having an on-going relationship with you, then they should consider it. Perhaps there is something in negotiations/emails that show the service agreement price was agreed on the condition the work be completed by service provider A?