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Privity of contract means contractual rights and obligations generally belong to the parties to that contract. This matters when work passes through a chain of clients, agencies and subcontractors.
This explanation focuses on England and Wales.
Lowdown
A third party will not normally be able to enforce a contract simply because it benefits from it, although legislation creates important exceptions.[1]
Why It Matters
If an agency has one contract with its client and a separate subcontract with a supplier, those are two different contractual relationships.
Before subcontracting work, check whether your contract with the client allows it. Some contracts require the client's written permission before you can use a subcontractor.[2]
The agency generally remains responsible to its client for what it has promised, even where it subcontracts the work. Its subcontract should reflect the standards, deadlines and other obligations the supplier needs to meet. It should also give the agency suitable rights if the supplier fails to do so.[2]
The Contracts (Rights of Third Parties) Act 1999 can allow a third party to enforce a contract term where the contract expressly permits it, or where the term benefits an identified third party and the contract does not show a contrary intention. The third party must be identified by name, class or description.[1]
Commercial contracts can also exclude rights under the 1999 Act, so check the wording rather than assuming a client or subcontractor has direct enforcement rights.[2]
Our Conclusion
Separate contracts generally create separate rights. If you subcontract work, make sure the subcontract reflects what you have promised your client and check whether either agreement gives third parties direct rights.
Sources
[1] Contracts (Rights of Third Parties) Act 1999, section 1: Right of third party to enforce contractual term and Explanatory Notes