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What is a Subcontractor Agreement?
A subcontractor agreement is a legal document that a general contractor uses on a construction project to hire a subcontractor. This contract is a legally binding agreement that defines the terms of a smaller job within the main project to be completed by an entity that is not the GC. Subcontractor agreements are typically between the contractor and another company and does not involve the client.
How Subcontractor Agreements Work
Subcontractor agreements are contracts between a general contractor and a sub-contractor that define the terms of the agreement to complete a smaller project within a main construction project. These agreements are separate from the main construction contract , which is signed between a general contractor and their client.
When a general contractor takes on a construction project, they don’t always have the knowledge, licensure, or insurance to complete all aspects of the whole project. When this happens, they can hire a sub-contractor to complete certain parts of the job. A contractor that specializes in framing buildings, for example, might hire a subcontractor who focuses on wiring the electric panels of the building.
Subcontractor agreements allow general contractors to ensure that each aspect of a construction project is handled by an expert in the trade. By using subcontractor agreements to take advantage of the expertise of other companies, construction projects can be completed up to state requirements while ensuring the client has the best work available completed on their construction project.
Check out this article to learn more about how sub-contractor agreements work.
What to Include In a Subcontractor Agreement
Making sure that all major details of a subcontracted job is included in the subcontractor agreement is vital to protecting the parties to the contract. There are many aspects of a successful subcontractor agreement that aim to make the subcontractor and general contractor relationship as simple as possible.
Here is an overview of what subcontractor agreements cover:
- Subcontractor, Contractor, and Client Details: The first thing that any subcontract agreement should call out is the parties of the construction contract. This should include names and contact details for each party.
- Payment Terms: Subcontractors take on a construction job for one main reason: to get paid. The subcontract agreement should specify how much a subcontractor will be paid and how often.
- Scope of Work: A statement of work regarding what is being contracted, how long the project will take, and any other expectations of the GC or client should be included here. There should also be information on what to do in the event of a change in the scope of work, such as a change order .
- Change Orders: Unexpected circumstances occur on construction projects without warning. When something doesn’t go as planned, there must be a procedure to use to identify changes that need to be made, get them approved, and modify the original agreement. A change order clause accomplishes all of the above.
- Insurance and Licensure: Subcontractors must be fully insured and licensed in their field in order to legally contribute to a construction job. Any applicable insurance and licensure details should be included and confirmed in the subcontractor agreement.
- Dispute Resolution: When things go wrong, legal disputes can arise. Specific information about what can be done in the event of a conflict is a vital part of a subcontractor agreement. This should include a dispute resolution clause , an arbitration clause , and an indemnification clause , if applicable.
- Termination Details: This section of a subcontractor agreements should detail what scenarios warrant a termination of the subcontractor. Some grounds for termination might involve behavior, ability to meet project deadlines, or willingness to complete required duties. Termination clauses give information about any notice that might be required and how a termination might change the payment terms of a contract.
Here is an article about the most important aspects of a successful subcontractor agreement.
Who Needs a Subcontractor Agreement
Subcontractor agreements are valuable tools for any general contractor to have. This is because a subcontractor agreement allows a subcontractor to take advantage of the expertise, licensure, and insurance of skilled workers that are not employed by the GC.
These agreements pave the way for a general contractor and another company to work together towards the same common goal of completing a construction project.
When is a Subcontractor Agreement Needed?
A subcontractor agreement is needed any time a second company is brought in to complete a project within the original scope of work on an originating construction contract. When a general contractor makes an agreement to have someone else complete a part of the job they contracted with the customer, in other words, a subcontract agreement is required.
Who Benefits from Subcontractor Agreements?
Subcontractor agreements are ideal for general contractors and subcontractors because they provide protections for both parties. General contractors set the terms of the agreement, detailing payment terms, project expectations and timelines. Subcontractors must abide by the rules in the agreement, or risk being terminated.
On the other hand, subcontractors also gain protection from these agreements. If payment is withheld, the subcontractor agreement allows for legal recourse to be pursued. Also, if an unexpected change needs to be made to the original scope of work, a change order clause in the subcontractor agreement can allow for changes and gives a specific workflow to follow to get the change documented and approved.
Learn more about who needs a subcontractor agreement by checking out this article .
How to Write a Subcontractor Agreement
Subcontractor agreements exist to create a contractual relationship between a subcontractor and a general contractor on a construction project. Subcontractor agreements explain the roles and duties of both parties as well as defines each party’s obligations while the work is being completed.
Writing a subcontractor agreement is a job best left up to construction lawyers , but can be broken down into an easy step-by-step process.
Step One: Define the Scope of Work
Before a subcontractor agreement can be drafted, the scope of work must be defined. Decide what work the subcontractor should complete and document it.
Step Two: Create Project Timeline
Make sure your project timeline answers the following questions:
- How quickly does the project need to be complete?
- Are there any major milestones that need to be done by a certain time within the scope of work?
- When is the deadline for completion of the entire project?
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Step Three: Explore Payment Terms
The subcontractor and GC must agree on compensation, compensation schedule, and method of compensation. This info must then be written into the subcontractor agreement
Step Four: Outline Legal Considerations
In order to protect both parties from a legal standpoint, contractors may want to consider including the following clauses in their subcontractor agreement:
- Arbitration clause
- Change order clause
- Indemnification clause
- Termination clause
- Subordination clause
Check out this webpage to see a sample template of a subcontractor agreement.
Getting Help with a Subcontractor Agreement
Do you want to set up a subcontractor agreement that can help your company work together with other experts in the construction industry? You need the help of experienced construction lawyers to get the job done right. Post a project on ContractsCounsel today to get connected with construction lawyers who are experts in drafting subcontractor agreements for construction projects.
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