Often clients have projects that are quite complex – parts of which your business may not have the expertise or bandwidth to take on. But, since you (the general contractor) don’t want to let go of that lucrative assignment, you hire a skilled independent vendor aka a subcontractor to support with the job. While that’s a smart move, it’s also important to formalize this alliance with both parties signing-off on a comprehensive and legally binding subcontractor agreement.
Now, if you are just here for the free downloadable template, here you go: link. But, for a better understanding of the agreement and what each clause in the contract stands for, I would recommend that you read on.
The original work agreement between you and your client holds you liable to the client. But, it has nothing to do with the subcontractor that you go on to hire. This is where the need for a subcontractor agreement arises. This contract can ensure that you do not have to take any liability arising out of the independent third party’s work on the project.
To understand this better, let’s assume that you are awarded a building construction project with a vast scope of work. Of the construction activities you are tasked with, tiling is a job which is outside of your business’ core competencies. So, you employ a subcontractor (say, Jack) with the relevant labor and tools, to help out. But, what if Jack does not deliver quality services or refuses to meet deadlines? You need a legal means to hold them responsible for said areas of dispute.
Signing the subcontractor agreement clarifies the specifics of the relationship between you and Jack – eliminating all confusion about what is expected of each party. Having such a well-drafted document in place also helps lower your insurance costs. On the other hand, it can aid subcontractors in safeguarding their interests and avoiding potentially messy disputes related to the likes of payment defaults or scope of work.
Now that you know how essential this contract is, read on as we have for you a detailed section-by-section rundown of the most important provisions that you need to include.
Full disclosure: This is about a 7-minute read, full of legal stuff. But it’s important to understand all aspects of the agreement that you’re proposing and signing.
Pro tip: Before you set out to engage with a subcontractor, make sure that your agreement with the client allows for you to outsource part of your contractual obligations. If not, the client could easily sue you for damages caused by the subcontractor.
A typical subcontractor agreement needs to comply with state laws and be simple and easy to comprehend. Also, it should include everything from the scope of the work, deadlines and payment terms to responsibilities and means of termination.
But, before we get into all that, it’s important to transparently introduce the various parties involved in this partnership and what their reason for association is. It should also include mention of the agreement start date.
This is super important! So, you start off the contract with a guide to what sort of work the subcontractor will have to do. Also, clear the subcontractor’s expectations on the volume of work that will be delegated within the agreement timeline.
Note: From this section onwards, you will also see several mentions of ‘Task Orders’. It refers to smaller contracts that contain all the details (eg: scope, cost, and schedule) of each specific job that is assigned to the subcontractor. It is usually raised post the inking of the subcontractor agreement.
Then, not only will you outline the essential elements that must be present in a task order for each job but also specify how to address any amendments to the task order. The Term or duration of the agreement should also be explicitly stated in this section.
What sort of services or goods are you paying the subcontractor for? Is overtime by the subcontractor’s employees something the Contractor needs to account for? Who pays for incidental expenses incurred while the service is being rendered? This section answers all these questions and more.
You may also make mention of who is responsible to pay the GST, HST, or any similar transaction taxes. And, then, a provision about the payment terms will nicely round off this part of the agreement.
Remember Jack, the subcontractor? What if during their association with your client they learn of new business opportunities? In such circumstances, you wouldn’t want them to poach the client from you. So, in this section, you clarify how much access the subcontractor has to the client and disallow them from pursuing new RFPs with the client, during the agreement period.
It would also be sensible to add a clause that prevents the subcontractor from further delegating the jobs outlined in the Task Order to another subcontractor.
When you start working with a subcontractor, there will be a lot of exchange of proprietary or/and confidential information and creation of unique processes and services/goods. It’s important that limits are set on how the subcontractor is allowed to use or share this information. You will also need to mention who (client, contractor or subcontractor) has rights over the project knowledge and output.
Additionally, for hyper-competitive markets, be sure to add a non-compete clause which prevents the subcontractor from working with direct competitors of the client, for a fixed period of time.
You can’t just hope that Jack shows up on time and completes the tiling for the new housing project that you are working on! Even the most trusted subcontractors may not always hold up their end of the deal. There could also be breaches of contract, in terms of damages due to negligence, or legal fees and such.
So, in this section you need to outline who will be responsible for delays and defaults and with what steps can either party terminate the contract. Most contractors also add an insurance clause, which makes subcontractors liable to have a comprehensive insurance coverage.
Pro tip: Consider adding a licensing clause that verifies that the subcontractor is licensed to perform work in the state.
Here are a bunch of legal terms that are standard across agreements, but also essential to the very structure of the document. A few questions that need to be answered in this section are:
Pro tip: It’s important to include a standard dispute resolution clause here. For a more affordable dispute resolution process than going to court, the provision must state that disputes will be settled by a neutral and non-binding mediator or arbitrator.
Arguably, this attestation section is the most critical part of the contract. Why? Because, if the document is not signed by both parties, the contract will not hold up in court.
In today’s increasingly febrile world, it’s understandable if you are nervous exchanging physical documents for the signature. This is why I would recommend an eSignature solution, where both parties can approve the contract without touching high-contact surfaces such as pens, papers, printers or workers’ tablets. This also fast-tracks the document approval workflow.
That’s it. You are now fully-equipped to use the downloadable and free subcontractor agreement template. <Download Template>
You will find yourself using this template a lot more often, if you deal with construction or information technology clients, where each project has diverse and elaborate requirements.
In such cases, you could save this contract template within your SignEasy account, and reuse it whenever you onboard a new subcontractor. Think of the man hours saved in drafting a new contract every time! This helpful blueprint that can be personalized and digitally signed before sharing with the subcontractor, anytime and from anywhere.
Pro Tip: Each agreement is unique, for its clause needs to be tailored to suit the local laws and specific circumstances. Therefore, be sure to seek legal counsel, from a lawyer, before using this subcontractor agreement template.
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