How to Draft Legally Compliant Subcontracting Agreements in Bahrain
In Bahrain’s contracting sector, subcontracting is an essential part of delivering complex projects whether it involves specialist trades like MEP installation, landscaping, marine works, or structural steel fabrication. While subcontracting allows main contractors to leverage specialized expertise, it also introduces legal risks if agreements are poorly drafted or fail to comply with Bahraini law.
This blog outlines the key legal elements of subcontracting agreements in Bahrain, common mistakes to avoid, and practical steps to ensure contracts are enforceable and protect all parties.
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What Is a Subcontracting Agreement?
A subcontracting agreement is a legally binding contract between a main contractor and a subcontractor to perform a specific portion of the works under a main construction contract. It defines the scope, obligations, timelines, payment terms, and legal protections for both sides.
Key Legal Requirements in Bahrain
1. Compliance with Licensing Laws
- Subcontractors must hold the appropriate commercial registration (CR) and approvals for the specific type of work.
- Engaging an unlicensed subcontractor can lead to regulatory penalties and project delays.
2. Clear Scope of Work
- Include precise technical specifications, drawings, and deliverables.
- Define what is excluded from the subcontractor’s responsibilities to avoid scope disputes.
3. Payment Terms
- Specify unit prices or lump sums, payment milestones, and retention percentages.
- Include provisions for payment delays, deductions, or set-offs.
4. Alignment with the Main Contract
- The subcontract must align with the terms of the main contract, especially regarding quality standards, timelines, and safety obligations.
- Flow-down clauses should ensure the subcontractor is bound by key provisions of the main contract.
5. Quality and Safety Standards
- Reference relevant Bahraini building codes, safety regulations, and industry standards.
- Set inspection and approval procedures for completed works.
6. Termination Provisions
- Define conditions for termination, including breach, insolvency, or repeated non-performance.
- Include procedures for replacing the subcontractor and recovering costs.
7. Dispute Resolution
- Specify the dispute resolution method litigation in Bahrain, arbitration, or mediation.
- Ensure it is consistent with the dispute mechanism in the main contract.
Common Mistakes in Subcontracting Agreements
- Using verbal agreements instead of written contracts.
- Failing to verify the subcontractor’s licensing and legal standing.
- Omitting clauses on variations and changes to scope.
- Ignoring the main contract’s requirements when drafting the subcontract.
- Overlooking insurance and indemnity provisions.
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Example
A main contractor in Bahrain engaged a subcontractor for specialist waterproofing works on a commercial building. The subcontract was signed quickly, without aligning its terms to the main contract.
When the project owner demanded additional waterproofing works due to design changes, the subcontractor refused, claiming the changes were outside their agreed scope. The main contract required the contractor to execute such changes, but the subcontract lacked a variation clause and did not bind the subcontractor to the same obligations.
A lawyer reviewed the matter and found that the subcontractor was legally correct in refusing — because the subcontract did not incorporate the variation provisions of the main contract. This led to delays, additional costs for the main contractor, and strained relationships.
Best Practices
For Main Contractors:
- Always check subcontractor licenses and qualifications.
- Ensure subcontract terms are consistent with the main contract.
- Include clear scope, payment, and variation clauses.
For Subcontractors:
- Review the main contract before signing the subcontract.
- Clarify all technical and commercial obligations in writing.
- Seek legal review for clauses that impose excessive risk.