What is a Subcontractor Agreement
A subcontractor agreement is an invaluable business tool that can help avoid complications down the line. It can be accounted for in the contract price, providing more freedom and flexibility along the way. Having solid agreements in place at the beginning of the process can help thwart confusion, combat liability and mitigate loss…. While subcontractors offer valuable support to your business, you should always protect yourself legally with clear agreements that set expectations and protections so everyone is on the same page. Subcontractor agreements are a specialized form of contract, made between the contractor (who retains the other) and the subcontractor (who is retained). They specify the duties and expectations for each party so they don’t clash (or the legal ramifications if they do). The agreement also gives the subcontractor detailed information about rates, hours and payment options . It also spells out what happens if payment isn’t made or the work is not done satisfactorily. In addition to looking out for subcontractors’ well being, agreements protect the contractor from any potential problems that might arise later in the process. It can also provide protection if a client refuses payment once the contractor delivers a project. In some cases, the contractor may end up having to sue the client for their money. With a subcontractor in this case, the responsible contractor can be left in the lurch to pay full price, and then must wait until he or she is paid back from the client. A subcontractor agreement can decide what the subcontractor gets paid and what happens if the work isn’t delivered. If a client refuses payment, the primary contractor can go after the client and the subcontractor simultaneously.
Components of a Subcontractor Agreement
When designing and creating an independent contractor agreement with a subcontractor, a company should make sure to include a list of its key elements to minimize the risk of dispute later on. As a general rule of thumb, any scope of work that is to be performed in the context of a subcontractor agreement should be thoroughly "spelled out" to the extent reasonably possible.
There are several essential components that can be present in a subcontractor agreement:
· Scope of Work: The subcontractor agreement should clearly state the tasks or services to be performed by the subcontractor. Scope of work language alone might be broad enough to even include a right of the subcontractor to subcontract. An example of this would be a contract for a construction project where a general contractor can elect to subcontract plumbing, flooring, framing, roofing and other tasks to subcontractors.
· Payment Terms: The subcontractor agreement must also detail the compensation to be paid to the subcontractor, the timing of the payments, and what exactly will trigger payment. For instance, a subcontractor can be paid a flat fee for the entire project, or it might be a much more complex agreement that breaks down the compensation into individual milestones. The method of payment should be outlined in detail.
· Deadlines for Completion: As subcontractor agreements often deal with construction, one of the most vital aspects usually has to do with deadlines. What is the agreed-upon schedule for completion?
· Confidentiality Provisions: Due to the sensitive nature of many contracts and proprietary information they contain, a company can deem it reasonable to include confidentiality provisions to prevent disclosure of trade secrets or privileged materials between the company and subcontractor.
Advantages of Using a Subcontractor Agreement Template
When people consider the different benefits of using a subcontractor agreement template, they can see that it can be a major time-saver. You will be able to produce legal documents quickly and efficiently rather than trying to create and design your own from scratch. The last thing you want is to have to spend hours creating and reviewing a contract when you don’t need to. Use templates as a guide to help you finish off agreements in a timely manner.
Another benefit is general consistency with your paperwork. Establishing a business involves working with various parties and creating contracts over and over again. If you have different agreements with different terms, it can get difficult (and confusing). Make it easier on everyone by having the same agreement used for every single contract or subcontract you create. Streamline your contracts for every agreement to help ensure that everyone is on the same page.
You will also be protecting yourself and your business with legal compliance. Many subcontractors involved in the homebuilding process will have their clients sign contracts without having a lawyer look them over first. Even if you know your business well and have done these same contracts several times, you shouldn’t overlook the fact that agreements do change over the years. Since the law is constantly changing and evolving, it’s best to consider using a template that is compliant with the current laws.
How to Personalize a Subcontractor Agreement Template
Customizing a subcontractor agreement template is an essential step in the contracting process. While a general template provides a convenient starting point, it must be adapted to meet the individual needs of the project, the requirements of the industry, and any stipulations of the state, country, and jurisdiction where the work will be performed. Failure to properly customize a subcontractor agreement could result in unenforceable terms or even breach of contract.
When modifying the template, the parties should consider the following key aspects: The customization process should begin when the subcontractor agreement template is created. However, the parties should also be prepared to revise the agreement at any time during performance. Because a subcontractor agreement governs the contractor- subcontractor relationship, there will invariably be instances when the agreement needs to be amended. For example, if the scope of work is expanded, the subcontractor agreement should be updated to reflect this change. If either party’s obligations change, the subcontractor agreement should be modified accordingly. Even the terms and conditions of the subcontractor agreement may require revision due to shifts in the law or industry standards.
In many cases, the parties will be able to modify the provisions of the subcontractor agreement on their own as long as the modifications are agreed to in writing. However, some changes may require the assistance of a judge or arbitrator if the parties cannot agree on a modification. Additionally, while it’s important to have a discount template to work from, the parties should not lean too heavily on it to craft the final version of the subcontractor agreement. Agreements that provide little or no opportunity for customization may discourage contractors and subcontractors from entering into contracts that reflect their own interests.
Properly preparing a subcontractor agreement for customization requires considerable skill and knowledge. For this reason, the parties should consult with legal professionals before drafting a subcontractor agreement template or customizing an existing agreement.
Pitfalls to Avoid in Subcontractor Agreements
One common mistake when it comes to drafting a subcontractor agreement is failing to use the most up-to-date template. Templates that are lengthy are variously out of date and/or contain too many provisions that may not be relevant to particular circumstances. You should therefore be flexible and adapt the template as necessary.
It is also not wise to use a contract that you have made a search for via Google or from a DIY online legal service. While there may be a small cost to having an attorney complete the job, having a contract tailored to your specific circumstances would prove to have been well worth it down the road if a dispute arises .
No matter how qualified you are as a lawyer, there is always the possibility of a drafting error. It is therefore a good idea to have the contract reviewed by an outside lawyer to eliminate any errors as well as any potential legal issues.
Assets are sometimes not addressed in a subcontractor agreement. These assets can include a computer or hardware that might not seem important for one job but may be required for other jobs as well. If a subcontractor is a self-employed individual, then these assets will be one of their most significant investments. You should therefore ensure that you have a clear procedure for assigning, repossessing or reassigning the assets.
Legal Implications in Subcontractor Agreements
If you’re a small company in a competitive field, chances are you have to either hire a subcontractor to get the job done or find yourself bidding with one in order to win the contract. Therefore, anyone who’s going to be a subcontractor (or anyone who plans to subcontract) needs to know that there are some legal aspects to consider when contracting.
While an individual, business, or other organization is typically free to run their operations as they see fit, there are laws in place to protect the rights and interests of workers that can be affected by the actions of a large number of established organizations, including laws relating to workers’ rights to obtain compensation for injuries, to receive a minimum wage, to be free from discrimination and harassment, and to join organized labor. When forming an agreement with a subcontractor, you should consider whether it is necessary for the company to provide the subcontractor with any of these protections, and whether you want them to pay for such an obligation.
In addition to protections for subcontractors, you’ll also want to consider whether the agreement provides adequate protections for your business, such as an agreement on how disputes will be handled if they arise, such as through litigation or arbitration. Many contracts also include a clause that stipulates whether the parties agree to submit to punitive damages and liquidated damages for breaches and other violations. To provide extra protection to your business, you may also consider including an indemnification for damages incurred if the subcontractor breaches their contract, especially if leaving the subcontractor with that liability would leave them with a financial burden that could damage your own business.
Generally, if an agreement isn’t specific enough, the law provides a fallback for many situations where certain terms are either unclear or omitted. However, these fallback rules may be in direct conflict with your business objectives, potentially causing financial loss due to contract violations or creating uncertainty about the value of the contract.
How to Choose the Right Subcontractor Agreement Template
There are a number of online resources for subcontractor agreement templates, but you’ll need to understand what makes a good template provider first. Once you find a template you like, you’ll probably need to edit the language to match the appropriate legal standards and terms for your particular business and industry. Look for a website that provides a good overview of subcontractor agreements, will instantaneously deliver a free template even if you don’t provide an email address, and is legally compliant . Good template providers will have secure servers and knowledgeable legal staff readily available to answer your questions.
Other than template providers, the two other best places to look are a local law library or book store. They’ll both have a large selection of subcontractor agreements, as well as other types of agreements, contracts, and forms you may need for your small business. However, if at all possible, have an attorney draft your subcontractor agreement for you to save on the costs of legal fees and ensuring that it’s done correctly, legally, and effectively by a qualified professional.
