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General Contractor Agreement

This Agreement is entered by and between Jonas Adam, individually or collectively as the "Signee" and Jane Smith, as the "Signer", together referred to as the "Parties".
The Contract is dated [the date both parties sign].

1. Agreement terms

The Parties agree that the following agreement is dependent on the terms presented as follow:

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General Contractor Agreement

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What is a General Contractor Agreement?

A General Contractor Agreement is a formal legal document that protects both an owner and a contractor who is performing work for that owner. It ensures that they both understand the terms of the project and avoids any miscommunications or misunderstandings. These are different from a Subcontractor Agreement, which is between the Contractor of a project and anyone he hires to help fulfill the terms of his General Contractor Agreement. You can always use a stipulated fee model to address any planned changes once the work is undertaken. 

These can also be known as Consulting Services Agreements, Freelance Contracts, Consulting Agreements, and Independent Contractor Agreements. Each one is changed just slightly to take care of the specialized nature of the work agreement. 

What is included in a General Contractor Agreement?

These agreements spell out the terms and conditions of the contract. These should include the Contractor (the one providing the service or work) and the Property Owner (the one receiving that work). It should also include all relevant contact information for both parties. 

They also need to include the job site. You should be specific when you name the site where the Contractor will be performing the work. This is a good place to discuss any relevant details the Contractor needs to know about the property, such as the Zoning codes, pipelines, utility lines, sewage information, and more. If one of you is unaware of any of this information, you may end up spending a lot of money because you were unaware of the laws regarding your site. 

For example, residential districts place restrictions on both the nature of the properties that can be built and the hours in each day that the contractor can work without violating any noise restrictions, which will both affect the price and duration of the Contract. 

You also need to include any insurance details. You need to determine whether the Contractor will carry liability insurance and outline which company his insurance is from and how much coverage he has. You also need to detail the property insurance and which party will be responsible for covering the tools, materials, and other expensive items that go into building or Contracting a home. 

Are independent contractors the same as employees?

Employees and independent contractors are very different, which is why a General Contractor Agreement is so important. Contractors may work for several different companies or owners at a time. They typically bill their clients for work rather than receiving a paycheck. Contractors are also expected to have their own equipment and tools when performing jobs. Typically, they do fantastic work because they are personally invested in their business and absorb all of the profits and losses personally. 

When it comes to contractors, the client typically does not get to dictate how the work is being performed. Unless it is stipulated in the General Contractor Agreement, it is not usual for a property owner to manage or oversee the work being performed except at checkpoints to ensure progress is moving as expected. They are not managers. They do not pay benefits from Contractors. 

Contractors are not employees. They are hired for fixed term projects. (source)

Contractors typically work on fixed term bases. While it is possible to hire a Contractor for an undetermined period of time and simply assign them milestones or pay retainers, the normal way to handle contracts is that a Contractor is hired on a fixed term basis for the duration of a project. They are allowed to hire their own subcontractors or bring in employees to complete the service contract, and usually, those wages and Subcontractor Agreement fees are included in the Contractor’s cost estimation when proposing the contract. 

Contractors enter a legal agreement after their proposal has been accepted. (source)

On the other hand, employees receive wages. An employer controls exactly how their employees do their work and dictate where and when they do that work. They also determine the wages that employers are paid. Employees can receive benefits and sick pay. Usually, they have signed an Arbitration Agreement for disputes. 

Employees are under management supervision, so employers may issue regular reviews and take disciplinary action line Employee Warning Letters. They receive training from their employers, a job description, and are usually provided the necessary tools for the job by employers. 

Why do these designations matter?

Knowing the difference between employees and contractors is very important to make sure that businesses are filing taxes correctly. The differentiation is also important for making sure that businesses satisfy employment law regulations when they are handling the people who work for and with them. This will also protect you from having to issue a Notice of Meeting to your shareholders to deliver bad news. 

Another reason it benefits companies to properly classify their Contractors is that they are obligated to pay a portion of the payroll taxes required for each of their employees. When they use Contractors, they are not required to do this. Contracts will be responsible for their own taxes.

Are there consequences for not using a General Contractor Agreement?

There are some big problems that can arise if you don’t use a General Contractor Agreement. Both the U.S. Department of Labor (DOL) and the Internal Revenue Service (IRS) frequently audit both companies and Contractors. Their aim is to determine whether the company has misclassified any of its employees as Contractors, and vice versa. 

This protects Contractors from being abused by companies who are treating them like employees who don’t get benefits or have tools made available. If a company has misclassified an employee as a Contractor, they can face some very tough penalties. These will vary based on whether the misclassification was done fraudulently, accidentally, or on purpose. 

Classifying employees as Contractors can include fines for every unfiled W-2 form for the duration of each misclassified Contractor’s employment, monetary penalties owed to your employees for failing to withhold their income taxes and pay employee payroll fees, interest rates on the late files when you do pay those fees, and a failure to pay tax penalty that can be as much as 25% of an employer's taxes and is determined based on how long they have been working for you when you failed to pay those taxes. 

How do I know a Contractor will keep my company’s trade secrets confidential?

Confidentiality is a big deal. This is why almost every contract that businesses have people sign includes a Confidentiality Agreement or clause. In many cases, Arbitration Agreements are also required to prevent disputes from reaching the media.  

The good news is that these are very standard. You can easily include terms that prevent the Contractor from discussing any information about your business or the project in the General Contractor Agreement. If your Contractor included Subcontract wages in their expense estimates when proposing the job, then you should also include terms that require each Subcontractor to sign a Confidentiality Agreement with you before they are Subcontracted through your Contractor. 

You can also look into non-solicitation and non-competition agreements. These are more than likely going to require some good negotiation skills because Contractors typically work for multiple clients at a time, and specialize in specific areas of business, but if you are worried about competition they may be worth having. 

What about intellectual property rights?

Usually, General Contractors won’t be doing any work that necessitates talking about intellectual property (IP) rights and ownership, but when it comes to architects and designers, many of them consider their work to be forms of art that are proprietary building designs that can’t be taken. 

Generally speaking, the one who is commissioning the work will receive the intellectual property rights to that work. A great example of this is that in Las Vegas, NV, a new resort under construction is facing a legal dispute with a neighboring resort over how similar their building designs were. 

Under normal circumstances, the U.S. Copyright Law recognizes that the one who is commissioning the work, and not the creator, receives the IP rights. However, if you are a Contractor who wants to negotiate to retain the rights to blueprints or design elements, you can negotiate to set new terms for shared IP rights or create a license that allows you to retain your IP ownership but also allows the one commissioning you to use the material.

Subcontractor Agreements and General Contractor Agreements 

General contractors might not be able to fulfill all aspects of a home improvement project. Subcontracting out aspects like that of flooring could be the case. The contractor will be the one directing the subcontractor in the best interests of their client. A subcontractor agreement will be required to make sure everything is in writing.

The general contractor will be responsible for putting the following in writing:

  • The scope of the project that the subcontractor will be handling is important. Being as detailed as possible is important. Project needs do change at times so the creation of another agreement to be signed can be done in these situations. 
  • The project’s duration is important as a general contractor is often on a tight timeline. A subcontractor delaying the completion of the project will reflect poorly on the contractor dealing directly with the client. 
  • Write out the payment terms and invoicing process. Certain subcontractors might need a downpayment for materials then are paid for labor after the project is completed. 
  • A non-compete portion of the agreement is extremely important. This prohibits the subcontractor from trying to steal a client with lower prices or a smaller timeline for completion of the project. 
  • Insurance and licenses need to be present as accidents do happen. Insured subcontractors are a necessity as liability is present during construction projects. 
  • Subcontractors commonly contract out parts of a project they are tasked with. Restriction of the amount of work that can be contracted out needs to be thoroughly detailed.
  • Non-disclosure agreements can be important in commercial projects. NDAs can also be required if the client is well-known in the area like a sports figure or celebrity. 

Subcontractor agreements need to be explicit in order to protect all parties involved. 

Release Agreements and General Contractor Agreements

A release agreement is a legal document that promises to stop pursuing legal action against another party. Release agreements usually come with compensation to one party which is similar to a settlement paid out by an insurance company. A release agreement in terms of a general contractor could be due to a poor or incomplete job done. One party offering compensation can be in hopes to reduce costs of legal fees or a potential huge lawsuit. 

The following are what should be outlined and included in a release agreement:

  • All parties that are involved need to be named.
  • The compensation that is being offered needs to be highlighted. This does not necessarily mean cash compensation as it can come in many different forms. Stock being offered can be common if a company has a restricted cash flow monthly. Titles to homes or cars can also be included as compensation. 
  • If the release is mutual this should be explicitly detailed. There are times where both parties are claiming they deserve compensation. Mutually parting of the ways helps reduce headaches involved with lengthy legal processes. 

A release agreement can be a far better path to take than filing or the continuation of a lawsuit. Terms must be met including compensation and other details for this agreement to be valid. 

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