# Supply chain liability Source: https://contracko.com/glossary/supply-chain-liability # Supply chain liability A principal's liability for wages and taxes that contractors and subcontractors fail to pay. ## Definition Supply chain liability makes a principal or main contractor jointly liable for wage and tax obligations that lower-tier contractors and subcontractors fail to meet. Dutch law combines the wage chain liability of articles 7:616a et seq. BW (the WAS) with the tax and social-premium chain and hirer liability of articles 34 to 35 of the Collection Act 1990. Businesses manage this exposure through screening, chain clauses and blocked (G-) accounts. ## Example > When a subcontractor fails to pay payroll taxes, the tax authority can hold the main contractor liable for the shortfall under the chain rules. ## Why this is a business risk Supply chain liability can produce significant unexpected costs at any level of a project chain, even where the principal has fully met its own obligations. A single non-compliant subcontractor several tiers down can trigger a claim against the main contractor for wage and tax shortfalls that the main contractor had no direct knowledge of. Businesses that lack systematic screening and contractual protections can find themselves paying twice: once to their direct contractor and again to the tax authority. ## How to manage it - Screen every contractor before engaging them: verify registration, risk status at the tax authority and membership of a sector guarantee scheme where available. - Include chain clauses in subcontracts that require every tier to comply with wage and tax obligations and to flow the obligation down further. - Require direct contractors to use a blocked G-account for the wage-tax portion, so funds are segregated before they can be diverted. - Keep a documented audit trail of your screening steps; a demonstrable due-diligence process supports a disculpation defence if a claim arises. - Monitor the chain during performance: periodic checks on subcontractor compliance reduce the risk of a late-stage surprise. ### How Contracko helps Contracko's contract repository and obligation tracking let you store, search and monitor all subcontracting agreements in one place, with reminders tied to compliance milestones. The AI review layer extracts chain-clause obligations and flags where flow-down requirements are absent or incomplete, so gaps are visible before a project starts rather than when the tax authority knocks. ## Legal references - [BW 7:616a Dutch Civil Code: wage chain liability (WAS) Dutch law](https://wetten.overheid.nl/BWBR0005290) - [Invorderingswet 1990, art. 34-35 Collection Act 1990: chain and hirer liability Dutch law](https://wetten.overheid.nl/BWBR0004770) Unless marked otherwise, references are to Dutch law (Burgerlijk Wetboek, the Dutch Civil Code); EU instruments such as the GDPR apply across the EU. This is general information, not legal advice. Other jurisdictions treat these concepts differently. Verify the current text and your situation with a qualified lawyer. ## Relevant for [Construction](https://contracko.com/industries/construction-industry)[Logistics & Distribution](https://contracko.com/industries/logistics)[Staffing & Recruitment](https://contracko.com/industries/staffing-recruitment)[Manufacturing](https://contracko.com/industries/manufacturing) ## Related clauses - [Supply Chain Liability](https://contracko.com/clause-library/supply-chain-liability) - [Flow-Down Clause](https://contracko.com/clause-library/flow-down) - [Subcontracting Clause](https://contracko.com/clause-library/subcontracting) ## Related terms - [Chain clause (perpetual obligation)](https://contracko.com/glossary/chain-clause) - [Subcontractors](https://contracko.com/glossary/subcontractors) - [Liability](https://contracko.com/glossary/liability) - [Duty of care](https://contracko.com/glossary/duty-of-care) ### Never miss a contract deadline again - AI finds renewal and notice dates - Risks and obligations are surfaced automatically - Reminders help you act before dates slip Drop a contract to start PDF, DOCX, PNG, or JPG [Start 7-day trial](https://app.contracko.com/register?appLanguage=en&utm_source=glossary_sidebar&utm_medium=lead_magnet&utm_campaign=glossary_sidebar_contract_upload&content_slug=supply-chain-liability&content_title=Supply+chain+liability&cta_placement=glossary_sidebar_cta&source_tool=glossary_sidebar_supply-chain-liability) GDPR compliant. Encrypted. Never used for AI training. ## Frequently asked questions Common questions about this term. - **Q:** Who can be held liable in the chain? **A:** Each link above the defaulting (sub)contractor can be held liable up the chain, so a principal may be addressed for wages and taxes a sub-subcontractor failed to pay. - **Q:** How can a contractor reduce this risk? **A:** By screening counterparties, using a blocked G-account for wage-tax portions, agreeing chain clauses, and keeping records that support a discharge of liability. - **Q:** Does chain liability apply to every industry or only construction? **A:** The tax chain liability rules of articles 34 to 35 of the Collection Act 1990 apply to any business that hires workers via contractors, not only construction. The wage chain liability rules of article 7:616a BW are similarly broad. Construction is the most prominent sector but logistics, staffing and cleaning are equally exposed. - **Q:** What is a G-account and how does it reduce exposure? **A:** A G-account (geblokkeerde rekening) is a blocked bank account held by the contractor, into which the client pays the portion of the invoice covering wage taxes. Funds in the G-account can only be used to pay the tax authority, which protects the client from chain liability for that amount. - **Q:** Can a main contractor be disculpated if it took sufficient precautions? **A:** Under the tax chain liability rules, a main contractor can invoke disculpation (vrijwaring) if it can show it took all reasonable steps to prevent the default, such as thorough screening and verified use of a G-account. The burden of proof rests on the party invoking disculpation. ## See these terms in your own contracts Upload a contract and Contracko pulls out the key terms, dates and obligations, then reminds you before each one matters. 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