5 Essential Components Of A Subcontractor Agreement. When you hire a subcontractor, it’s important that everyone is on the same page. A legal contract, also known as a subcontractor agreement, ensures that all parties share responsibility for the project.
An efficient and detailed subcontractor agreement can save everyone time and money by avoiding unnecessary complications.
In some cases, collaboration with subcontractors is not managed well, leading to severe financial and reputation loss. Without a formal agreement, you’re at risk for receiving incomplete jobs or poor performance and potentially ending up with instrumental liability.
For more detailed information about subcontractor agreement templates and tips.
What is a subcontractor agreement?
A subcontractor agreement is a contract between a general contractor and one or more subcontractors that outlines the terms of their working relationship.
The agreement usually spells out who is responsible for providing which services or materials, as well as pricing information, payment details, and any legal terms and conditions that will govern the duration of the project. Once both parties have signed the agreement, work can begin.
The benefits of a subcontractor agreement
There are several benefits to having a subcontractor agreement, including:
- – Detailed information on the scope of work, timelines, milestones, and payment
- – Legal protection for both contractors and subcontractors
- – Protection from liability if the subcontractor delivers a poor or incomplete job
- – Lower chances of hidden costs during the project duration
- – Insurance information for the subcontractor
The essential components of a subcontractor agreement
There are several clauses in a subcontractor agreement that protect both the contractor and subcontractor unless the job is completed. The following are essential components of a subcontractor agreement:
1. Details of all involved parties
The first thing you should include in the subcontractor document is the name and contact details of all the involved parties in a construction project. This includes:
- -The parent company or the main client requesting the construction work.
- -The main contractor, general contractor, or construction business agency taking up the construction work.
- -Subcontractors and vendors hired by the primary contractor for outsourcing specific tasks.
2. Scope of work
The subcontractor’s scope of work is the set of activities and tasks assigned to them by the main contractor. The subcontractor is expected to deliver the scope of work within the timeline specified by the main contractor.
The scope of work includes all the details of the construction project activity, including the resources required, start date, completion date, milestones, and important deadlines. It is important that the scope of work clauses are precise and clear to avoid any complications during the construction project lifecycle.
3. Payment information
The subcontractor agreement should include when and how the contractor will receive payment, as well as how much payment the subcontractor will receive for each task. If you have paid any advance payments or deposits as a contractor, ensure to include the same in the subcontractor agreement.
Finally, your agreement should include a buy-out clause if things don’t work out between you and the subcontractor. Include any applicable conditional payment terms (e.g. pay if paid and pay when paid).
Construction projects are made up of many different moving parts, so it can sometimes be difficult to figure out who exactly has authority over which part of the project.
That’s why it’s important to establish who has the power to make legally binding decisions during the initiation stage of the project. For example, the contractor should have the authority to determine how and when a task needs to be completed, while the subcontractor has the authority to decide which tools, machinery, and workforce will be used.
By understanding who has authority over which component of the project, you can avoid confusion and potential conflict down the road.
5. Change order clause
Construction projects are always at risk for encountering unexpected circumstances without any prior warning – for example, an earthquake could destroy parts of an almost completed construction.
In the event that an unplanned situation does occur, a change order clause will dictate how to proceed with modifications, updating the original agreement to meet the new requirements.