École Nationale de Commerce et de Gestion

SUBCONTRACTING
Presented by:
•

Supervised by:
Mr.
 Outline:
• Introduction

• Subcontract: Definition

• Subcontracting: Issues and limits

• Subcontracting:
Advantages and disadvantages

• Conclusion
Introduction
 Whatever created firm, someday, his creator
would have to face to work surplus or to a too huge
contract to doing by himself. Solution: subcontract.
Today, it is common practice using by big, medi-
um-sized and small firms. Nevertheless, subcon-
tract is not an easy process.
 Definition

Subcontracting is a contractual relationship

between a principal and an independent firm (the
subcontractor) that does a work, a provision of a service
according to specific terms and conditions.
In definitive, it is a process by which a firm (sub- contractor) is
invited by an other (principal) to supply goods or services to
it, after that principal could use it to its own trade benefit.
Principal keeps intellectual property, sub-contractor is simply an
executive.
Subcontracting:
Issues and limits
 Issues and limits
Issue, in an operation of subcontract, is to know the ultimate objective, what is the
nature of the enterprise… To remain competitive or then to un- load
itself/themselves of a part of work,
the entre- preneurs have tendency
to reconsider their organi- zation in order
to refocus themselves on their heart
of profession, and to leave to specialized
enter- prises weak added value operations
or activities that they don’t perfectly
overcome. This process of externalisation
often takes the shape of a real partnership:
the contract of subcontract.
-The functions the more often subcontracted concern
administration, accounting… activities allowing enterprise to
reduce its production costs (machine, workforce…) or the
operation asking for unsuitable cash management.
-Subcontracting have to be conceived like a partnership
established between the order giver and the taker of order
(subordination is illegal). It is therefore indispensable to
define a project in which the parts produce, conceive and
work joint.
-Nevertheless, if subcontracting allows the enterprise to
refocus itself on its heart of profession, it is necessary to
keep in mind that all partnership is a delegation of activities
susceptible to create dependence harmful to the taker of
order.
Subcontract and autonomous
workers:
Advantages and disadvantages
 Principal
Advantages Disadvantages
Bigger flexibility Transaction and agency
(moving fixed costs in costs, strictness
variable costs) framework
Investment drop Checking and incitation
Fall in cost price Losing control
Take advantage of Risking in giving
specialist skills internal document and
activity
Reduction in Problem with quality
management control
Subcontracting
Advantages Disadvantages
Activity development Subordination to principal
Reduction of trading Weak negotiation power
activities
Better profitability of Risk linked to
investments cancellation of contract
Learning with principal Risks with failure and
weakness of principal

Competition between Risks with failure and

subcontractors weakness of
subcontractor
Negotiation power Risks with
subcontractor work (if
he works with our
competitor)
Opportunism Have to disclose
documents
Conclusion
 It is necessary to choose a sub-contractor that have a
good enough level to be able to successfully sub-contract a work.
Il est nécessaire de choisir un sous-traitant qui a un niveau assez
bon pour être en mesure d'en sous-traiter un travail.
Else the sub-contractor will be lost and enable to succeed
deliveries. Here the sub-contractor has a very low level while
the customer's level is very high.
Sinon le sous-traitant sera perdue et ne pourra pas réussir les
livraisons. Ici, le sous-traitant a un niveau très faible alors que le
niveau du client est très élevé
Thank you for your
attention