Subcontractor agreement

What is a subcontractor?

A subcontractor is someone who performs part of work on a project for someone else, often the contractor themselves, who in exchange is doing work for the customer. While there are many similarities between a contractor and subcontractor, there are just as many differences. These similarities and differences are important to understand as they have practical implications for the client, contractor, and subcontractor.

For example, in construction or building trade, the contractor typically owns the relationship with the customer and is their single point of contact for the direction, pricing, and other business elements of the project itself. However, a contractor may not have all the necessary skills, tools, people, and other resources to complete special parts of the job, such as painting, electric wiring, HVAC installation and maintenance, and so on. So the contractor will outsource this work to a specialized subcontractor, and will use a subcontractor agreement to make the relationship official.

However, a subcontractor does not always need to be working in construction and does not always need to be providing services. Subcontractors can be involved in any project where the contractor themselves cannot fulfill all the work, and that can include manufacturing, software development, consulting, and a host of other industries.

What is a subcontractor agreement?

A subcontractor agreement is the legal document that formalizes the relationship between the contractor and the subcontractor. As mentioned above, this relationship is unique in that only the contractor themselves has a legal relationship with the customer. The subcontractor is working with the 

Why do you need a subcontractor agreement?

Subcontractor agreements, like many agreements, protect the interests of everyone involved in the transaction by making the expectations and various scenarios very explicit. It should outline who does what and when, and what happens if things go wrong or right.

For example, let’s say that a customer hires a contractor to manage the development of a new condo complex, and then the contractor hires a subcontractor to install electrical wiring. In an idea world, the subcontractor would install the wiring as intended, it would work great, and that would be it. But what happens if the subcontractor doesn’t fulfill the work, or doesn’t do it properly? This would result in a significant loss in money and time for both the contractor and subcontractor. But it’s not just the subcontractor that can create issues. What happens if the subcontractor does a great job but the contractor doesn’t pay them their full rate? If there was no subcontractor agreement in place, it would be difficult. So that’s why a subcontractor agreement is critical to spelling out exactly what everyone will do in every situation.

When do you need a subcontractor agreement?

As a contractor, any time you’re doing work with a subcontractor, it’s recommended that you have a subcontractor agreement. Similarly, if you’re the customer, it’s worthwhile checking with your contractor that they always use subcontractor agreements with their subcontractors. As is often the case with contracts, it’s better to be safe than sorry and it’s best for everyone involved to sign a subcontractor agreement. There are many agreement templates online that are quick to create and will save you alot of hassle.

How does a subcontractor agreement relate to the agreement with the client?

This is where a subcontractor agreement gets interesting, especially as it relates to the work relationship, expectations, and legal obligations between the customer and the contractor, and then the contractor and subcontractor. 

Subcontractors themselves are not responsible for any part of the original agreement between the contractor and the customer. While the contractor can include things in the subcontractor agreement that reduce the risk of things going wrong, ultimately the contractor is promising to the customer through the original contractor agreement that they will deliver certain things.

So, for example, let’s continue with our example above. A customer has hired a contractor to build a complex of condos. The contractor in turn has hired various subcontractors to complete various parts of the construction project, and one of those parts is electrical. Let’s say in the original contractor agreement, the customer specifies that the electrical needs to be done and tested and to code by a certain date or a certain penalty is incurred. If the electrical subcontractor misses that date or otherwise creates issues, it’s not the subcontractor that’s responsible to the client (although they are responsible to the contractor). It’s the contractor themselves that the subcontractor is responsible to. 

What must your subcontractor agreement have in it?

A subcontractor agreement can have many different components depending on what type of work is being done. Another consideration is what state the work is being done in, or, in a more complex situation, is the work is being done in or across two or more states. It’s important to keep this state aspect in mind, as there are different laws in different US states.

Some of the most common and important clauses in a subcontractor agreement are:

• The project scope: this is often the first part of every subcontractor agreement and the most important, because it outlines exactly what is being done in the project. Often being more explicit here is better than being less explicit. If at some point you need to change the scope, such as if it expands, that no problem and you can amend the agreement or sign another one. However, it’s important to spend time upfront ensure the project scope is clearly detailed because it sets the right expectations as well as sets the framework for the other important sections outlined below.
• The project duration, or timing of completion: just as you need to outline WHAT you’re going to do, it’s equally important to outline WHEN you’re going to do it. Just like with the project scope, it’s worth spending the time to be extra clear on when things will be delivered. This is also a helpful exercise to ensure your own internal project planning is running according to plan and that you can deliver everything on time. It helps to have everything in writing. Keep in mind that if you’re delivering parts of the project in a sequence or in installments, that should be noted in the duration also, in addition to the final completion date.
• The payment schedule and details: this is also a very important section because the subcontractor likely isn’t working for free! Here you should outline not only what will be paid, but also when it will be paid and how. Many companies will have different invoicing policies -- such as paying invoices within 30, 60, or 90 days after receiving them -- so that should be factored into the payment schedule. It should also be clear how you’re getting paid, whether it’s by cash, check, bank transfer, or some other way.
• The independent contractor notice: it may seem obvious that a subcontractor is, well, an independent contractor, but as with all things in contracts, it’s best to have that written down explicitly! The United States and especially certain states like California and New York are very particular and stringent when it comes to identifying misuse of contractor status, so having this clause helps protect everyone involved.
• The non-disclosure agreement: this clause may or may not be included, depending on what type of project you’re doing and what the customer and contractor want. However, if you’re working on a sensitive project, such as in a competitive commercial environment or something for the government, often you will need to keep certain matters of the project under wraps, and the non-disclosure clause in the subcontractor agreement will help do that. This can be a mutual NDA or a unilateral NDA.
• The non-compete clause: just like the non-disclosure clause, the non-compete clause is not a requirement but it is included in some subcontractor agreements depending on the circumstances of the project, client, contractor. Sometimes the contractor will want to ensure the subcontractor isn’t working for anyone else while they’re working on the given project, but some contractors or subcontractors are simply too big or small for this to make sense, so it is often not included or not enforced in many contracts.
• The inclusion for work for hire: this section makes it clear that the final work product belongs to the customer ultimately, and that the subcontractor is exchanging this work for the compensation they’re being paid. This is also why it’s important to have detailed and well thought through payment terms.
• The accidental damage insurance and other responsibilities: it’s not uncommon for accidents and other issues to arise when work is being done, so it’s important to be clear who has insurance and what that insurance covers.
• The assignment restrictions and permissions: these are restrictions that the contractor can put into the agreement to restriction how much of the work the subcontractor can in turn subcontract to others. Often the contractor will want to include this to ensure the subcontractor is not spread too thin.
• The indemnity clause: this is an important clause for the contractor as it allows them to avoid significant issues that arise from the work that the subcontractor does. As is common with many parts of this subcontractor agreement, there are many state-specific elements here which need to be taken into account when creating an indemnity clause, as well as factors such as the type and location of the work being done.
  
  

Can a subcontractor agreement be in PDF or Mircosoft Word format?

A subcontractor agreement can be in PDF, Microsoft Word, or printed on a piece of paper. However, it’s important to ensure the document is filled out entirely, signed correctly, and that every part has a copy of the agreement for their records.

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Settlement and Release Agreements 

Disagreements and lawsuits occur daily which can be a nightmare for a business or individual. A settlement and release agreement is convenient for those that simply want to stop the fighting and constant visits to court. Legal costs can add up quite quickly especially without a law firm or legal professional on retainer. Settling outside of court is often beneficial for both parties in order to avoid lengthy legal proceedings. 

These agreements will have to contain the following in order to be enforceable and legally binding:

• The scope of the release and specification of compensation has to be detailed explicitly. 
• A general release covers far more than a specific release so this is something to keep in mind.
• The release also should be one or two-sided which can prevent any further action occurring. 
• NDAs can be required depending on what the settlement is for. 

Staying in court when a settlement is offered can be a bad decision for those incurring legal fees. End the headache by signing a settlement and release agreement. 

Model Release Forms 

Models can be used to promote a brand or simply promote themselves or a photographer. A model release form being drawn up by the model or photographer is important. A model does not want their image on a campaign for a brand that goes directly against their personal values. The release is not just protecting the model but it is protecting the photographer as well.

The following details need to be noted in a model release form:

• The model and photographer should include their names and contact information. If there is a 3rd party buyer or sponsor they should be listed as well.
• The location of the photographs needs to be specified as laws that impact these agreements differ by state.
• Compensation needs to be stated and NDAs signed for campaigns that have not launched.
• The creation of these forms should be done regardless if you think the photo will be used in a commercial manner.

A model release form can be created from a template and many models, as well as photographers, have these as a file. Take the time to create a thorough agreement that protects your best interests. 

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Vendor Agreements 

Plenty of companies use vendors to drive sales of their products. The selling of these products should come with a vendor agreement to protect those involved in business together. These agreements can be simple or complex depending on the scenario. The agreement is a simple way of describing the business relationship between two entities.

The best course of action is to get everything into writing. The vendor agreement should include the following basic details:

• The parties involved should be named and contact information provided.
• Payment terms are important to clarify as tension can be created through terms that are a bit too flexible.
• The length of the contract should be stated along with grounds for termination of the contract. 

A vendor agreement can protect everyone involved in a business relationship. Great relationships with vendors can yield large amounts of sales annually.