Subcontract agreement in construction: how to compose one

Subcontract agreement in construction: how to compose one

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.

What is a subcontract agreement?

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 run an effective workforce planning meeting cover

Think your workforce planning meetings could be more productive?

Download our ebook to learn how to run efficient, effective workforce planning meetings with your team.

Get your playbook→

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. Depending on how the contractor is doing financially, some may pay up-front while others may use conditional terms, such as ‘pay if paid’ or ‘pay when paid’ clauses. Pay if paid is when contractors only pay if payment was in turn received from the customer under the main project’s contract, while pay when paid sees contractors paying when payment is received from the customer. While it passes on some of the non-payment risk to subcontractors, it’s important to note that in some states, contractors aren’t legally permitted to withhold payment forever and must eventually pay for work that was completed. States that have outlawed pay-if-paid provisions include California, North Carolina, Nevada, and New York.
  • 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 flat fee or if their payment depends on the number of hours they spend on the job.
  • 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 is not at all uncommon.

Life before & after Bridgit Bench

Watch how leading ENR 400 contractors have leveled up their workforce planning by leaving their spreadsheets behind.

See all of our customer stories →

Bridgit, a workforce management solution

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.

Bridgit Bench is a cloud-based workforce management solution that allows users to track project progress and oversee construction personnel. Using the platform’s people intelligence, you can plan your workforce strategically. Retain top talent while realizing the full potential of your employees.

With Bridgit Bench, you can rest assured that you’re putting the right people on the job. Look through an organized list of people to sort, search, and filter your entire team to find exactly who you’re looking for. People profiles let you view each person’s skills, certifications, experience, project history, and professional goals. With Gantt charts, you can map out your team’s availability and plan up to 5 years ahead.

Improve your construction firm’s workforce management by choosing Bridgit today!

Michel Richer headshot

Michel Richer

Michel Richer is the Manager of Content and Product Marketing at Bridgit. He started in the construction industry early on with a local restoration company. Michel is driven to propel the construction industry forward by helping to eliminate outdated, ineffective processes.

Connect on LinkedIn →