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Construction projects are often large and complex, and as a result, are subject to various types of documentation and agreements. Defining the responsibilities and rights of each contractor in writing is crucial for a project’s success. Keep reading to learn more about subcontract agreements, as well as how to compose one.
A subcontract agreement is a legally-binding arrangement made between a contractor and subcontractor that describes the work to be performed on a project. In exchange for the services provided by the subcontractor, a contractor agrees in writing to pay a specific amount of money within a certain period of time. The agreement also describes at length a subcontractor’s obligations.
With how complicated construction projects can be, subcontractors are usually necessary to complete more specialized portions of the project, such as concrete or electrical work. They’re expected to have the skills, expertise, and certifications to finish the job safely and within budget. Using subcontractors can save on costs, as they’re usually brought on for a temporary period of time rather than being paid at a constant rate like regular full-time employees.
However, if you are hiring a subcontractor on for an extended time, their tasks may be numerous, with responsibilities changing over time. You’ll want to get all subcontractor obligations in writing to minimize the likelihood of disputes, but writing a new subcontract form agreement for every additional task can be tedious and unproductive.
Instead, a contractor and subcontractor can draft and finalize a master agreement to simplify things. A master agreement details the terms of a subcontractor’s work and which services they expect to provide. From there, you can simply add on purchase or job orders, incorporating them into the main master agreement each time.
How to write a subcontract agreement
Although you’ll be able to find subcontract agreement templates online, you’ll likely want to adjust the agreement to fit your project’s individual needs. Here are some things to consider when drafting an agreement.
NEGOTIATE ALL TERMS AND CONDITIONS
For this type of agreement, the more detail included, the better. Account for all terms and conditions to cover as much ground as possible, ensuring that subcontractor obligations are clearly stated and relevant to the job. Some key things to include are:
- Scope of work – Indicate exactly what work is expected to be performed. This should be specific and precise, since ambiguity can create confusion and result in legal complications.
- Warranties – State a warranty period so you have enough time to assess that you’ve received quality workmanship. Warranties can hold subcontractors accountable and ensure they’re completing the job properly. It also makes any needed repairs or replacements a legal obligation.
- Dispute resolution – Should disputes arise, agreeing beforehand in the subcontract form agreement how they’ll be handled with arbitration or mediation clauses can create a legal foundation that takes into consideration the best interests of all parties involved.
- Payment terms – Settle how and when the subcontractor will be paid.
- Compensation – This part of the subcontract agreement should show how a subcontractor’s compensation will be calculated. In other words, whether they’ll be paid a lump sum or if their payment depends on the productivity output calculated through measurement sheets or number of workers on the job in case of a labor contractor .
- Policies and procedures – Specify the policies and procedures the subcontractor is expected to follow on-site and according to the project’s requirements.
- Termination – State the conditions in which either party can terminate the agreement, and what rights each party will possess following termination.
DRAFT THE AGREEMENT IN WRITING
Although verbal agreements can be legally binding if they include all the necessary elements to constitute a contract, a stronger case can be made during disputes if the entire agreement is documented in writing. Even assumptions should be included and adjusted or agreed upon to clarify and eliminate misunderstandings. It helps to also keep any emails or chat logs regarding the agreement’s conception and signing.
AMEND THE AGREEMENT AS NEEDED
Once drafted and sent, the subcontractor should be given enough time to read it over, suggest changes, and sign it to confirm that they’ve agreed to all the terms.
But even after the subcontract agreement is finalized, there may still be some required adjustments. The dynamic nature of construction projects can result in mid-way changes, so renegotiating terms as variation orders is not at all uncommon.
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Subcontract form agreements are a necessary part of the construction hiring process. Once you’ve hired on workers, managing them can be a lot to deal with. Technological solutions make workforce management easier.
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