Creating a thorough subcontractor agreement is a must for all construction business owners.
By making sure that you and any subcontractors you are working with have an agreement for any given project is a necessity for avoiding conflict down the road.
Today, we’ll discuss how to make sure that the agreement you have with your subcontractors is carefully articulated in the contract you sign with them — ensuring that all your bases are covered.
First up, negotiating your agreement.
Negotiating the Agreement With Your Subcontractor
Perhaps in a perfect world, you and the subcontractor would come to an agreement soon after deciding to work together.
However, it’s important that you do have a discussion with a subcontractor on the expectations for the project, the specific work that they will be tasked with completing, and of course compensation and payment methods.
It’s important to set some time aside to go over all of these details to ensure that there is no confusion on what the job is.
Other important details to work out during the negotiation:
The estimated time of completion – You should work with the subcontractor to determine these deadlines. It’s also wise to ensure that you give a little leeway between the finished date you gave the client and the one you will create for the subcontractor. This is to ensure that if the subcontractor runs into any issues or roadblocks, you can still finish the project in time.
Where the materials will come from – If additional materials are needed to complete the job of the subcontractor, you must decide who will be the one responsible for purchasing said materials. Typically the subcontractor will be in charge of this, but not always.
Outlining what happens in the event of a breach of contract – It’s important to also discuss what will happen in the event of a breach of contract. Typically this revolves around completion dates — so make sure you work with the subcontractor to find deadlines that are fair.
Drafting the Physical Agreement
The first part of drafting the physical subcontractor agreement is to identify the parties involved.
You should include the legal status of the two parties (i.e. LLC, sole proprietor, etc), as well as the project itself — referencing the master or prime contract for the overall job for clarity.
If the subcontractor will bring on other workers to help them complete their tasks, include within the contract that they are their employees, not yours.
Next, define the scope of the work. You should be as specific as you can here because you can’t expect the subcontractor to remember everything offhand that you agreed upon. Being descriptive will also ensure that the job gets done right and if the subcontractor doesn’t follow everything that is outlined, you may be able to argue that there was a breach of contract.
Rights and duties should also be included, for example, if the subcontractor is providing their own worker’s compensation and liability insurance, make sure that they are the ones in charge of that in the contract.
Another common detail to add is that the contractor can come in and inspect the work of the subcontractor at any time to ensure it is being completed in line with the agreement.
Other important information to list:
- Work completion and payment schedules – Decide how payment will work, whether it’s on a weekly basis or after certain milestones are achieved. Typically you will list the total payment amount, and then provide the schedule of payments to be made throughout the project as percentages of that total. It is smart to add a clause that covers how payment may be withheld under certain circumstances (i.e. if they are way behind schedule).
- Warranty and indemnity clauses – In most cases, the subcontractor warrants there work in the event of defects in material or craftsmanship failures. This should definitely be included within the contract so that you don’t come under fire for any of the subcontractor’s mistakes.
- Methods by which the contract may be terminated – Define what actions may warrant the contract to be considered broken, and can therefore then be terminated.
Last but not least, you’ll need both your own and the subcontractor’s signature.
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