Subcontractor agreements facilitate productive partnerships between subcontractors and general contractors, and are vital to ensure that work is completed legally and up to standard. Here’s what you need to know about subcontractor agreements. In this article, we’ll also share a subcontractor agreement template that you will be able to tailor to a variety of projects.
What is a subcontractor agreement in construction?
Let’s start with the basics. Subcontractor agreements formalize the relationship between subcontractors and general contractors, and act as contracts that outline the terms of the subcontractor’s work. As you’ll later see in our template below, they include all the key components necessary for a project’s successful completion.
Subcontractor agreements protect all involved parties by specifying services and associated clauses (i.e., when those services need to be rendered and on behalf of which client). A well-written subcontractor agreement can help prevent disputes between parties, and if a dispute does arise, the agreement can be used as evidence in court.
A simple subcontractor agreement is typically created and signed following bidding and subsequent negotiations. It essentially solidifies commitments made through other mediums (such as verbally) prior. After drafting, it’s recommended to have an attorney review the agreement before it’s signed. An attorney can ensure that the agreement is fair and enforceable.
Some basics that subcontractor agreements usually include are the scope of work, the schedule of work, payment terms, and any other important details about the project.
Who needs a construction subcontractor agreement template?
Having a clear and enforceable subcontractor agreement is important for both general contractors and subcontractors.
For the general contractors, it ensures that the work will be done as agreed upon and that they will not be held liable for any damages caused by the subcontractor. For the subcontractor, it protects them from being taken advantage of and allows them to plan their work accordingly.
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11 things to include in a simple subcontractor agreement
Here’s a subcontractor agreement sample and basic structure so you can see the components commonly included in these agreements.
1. Define business information
Include pertinent information about your business and the subcontractor’s. This clearly states the parties involved in the agreement and what each business deals with, which is not only helpful for legal purposes, but provides clarity later in the agreement when specifying what each party is responsible for.
2. Declaration of involved parties
This section of a simple subcontractor agreement defines a few key items, including the date on which the agreement was notarized and more specifics on the two parties involved in the agreement (typically the subcontractor and general contractor), along with their respective mailing addresses.
3. Declaration of the client
This section clarifies that the subcontractor must complete work according to the agreement held between the general contractor and the client/project owner. It also specifies who the owner is and lists their full mailing address.
4. Services provided
Here, the agreement will detail which services (or work) the subcontractor is expected to provide. As an example of subcontractor agreements, it might state, “Subcontractor agrees to install 100 windows on the client’s skyscraper.”
5. Subcontractor responsibilities
This section explains exactly what component(s) of the work a subcontractor is responsible for. Choices typically include:
- Labor: If this is the subcontractor’s responsibility, they’ll provide the workers needed to render the services. They’ll also shoulder the associated labor costs.
- Materials: When this falls under the subcontractor’s purview, they’ll purchase all equipment required for their services.
- Equipment: If this box is checked, the subcontractor will be responsible for purchasing and managing equipment.
- Travel: When a subcontractor is in charge of travel, they’ll pay the costs associated with transporting labor, materials, equipment, and other essentials to the job site.
Some simple subcontractor agreements in construction will also include additional responsibilities as needed (typically placed under the category of “Other”).
This section will also typically mention that the subcontractor won’t be held responsible for costs not mentioned. The implication is that the general contractor or some other party will be required to address those needs.
6. Change orders
The subcontractor agreement should also describe how subcontractors will handle change orders when they’re requested. Things like turnaround time and payment should be specifically detailed in this section.
7. Payment clauses
A subcontractor agreement will also typically specify how the subcontractor will be paid for the job. Some agreements implement a conditional payment clause. “Pay-when-paid” is a common clause indicating the subcontractor won’t be paid until the general contractor pays them for their work.
8. Certification and insurance coverage information
It’s important to include clauses that guarantee the validity of a subcontractor’s certifications, as well as agreements on which party will be responsible for ensuring that insurance coverage is paid into.
9. Project location
This portion of the subcontractor agreement template should specify the project’s location. If the project’s location isn’t established when the agreement is created, however, some templates leave room for a “To be determined” checkbox.
10. Resolving construction claims and disputes
Include in the subcontractor agreement how disputes and claims will be dealt with. Methods should focus on avoiding costly litigation and arbitration and should emphasize how conflicts will be negotiated. It may help to include pertinent legal information and consult a lawyer for these specific segments.
11. Define termination clause
The subcontractor agreement should also cover what will happen in cases of contract termination—i.e., what information will be included in termination agreements, how payments will be carried out, and how any existing obligations will be resolved.
Protecting yourself as a subcontractor when signing an agreement
Let’s explore how you can protect yourself when signing these agreements. We’ll start from the perspective of subcontractors.
Ensure the contract is detailed
Take another look at the subcontractor agreement template we’ve included above. Notice that the information included that may seem pretty obvious at the end of the day. For example, does the client’s information really need to be stated so clearly, especially if they’re well-known?
Unfortunately, the answer is yes. A subcontractor agreement is essentially a collection of shared facts that will help third parties (such as a judge) mediate any conflicts that arise. So it’s in everyone’s best interest to make sure the contract is sufficiently detailed.
Make sure you understand everything before signing
Subcontractors must understand what a project entails (including expectations and obligations) before signing an agreement. Ensure you know your responsibilities inside out and communicate them with your team members to avoid misunderstandings.
Don’t be afraid to scale back expectations
Ideally, the goals and responsibilities communicated in your simple subcontractor agreement should reflect prior discussions you’ve had with your general contractor (i.e., during the bidding process). There shouldn’t be any last-minute surprises (like extra services) stuck into the agreement.
When this happens, subcontractors are often tempted to sign the agreement anyway for fear of losing the contract or others like it in the future. If the extra work is infeasible based on the timeline and budget, though, agreeing to do it goes against your best interests. In such a scenario, don’t be afraid to address those concerns.
Protecting yourself as a general contractor when signing an agreement
On the other side of the coin, here’s how general contractors can protect themselves when signing a simple subcontractor agreement.
Be very specific regarding your expectations for the subcontractor
Before a subcontractor signs the agreement with your company, they should know every detail of what they’re signing into, including exactly what work is required of them and who will cover specific costs related to their services. This will increase your chances of having a successful partnership.
It will also cover you legally if the subcontractor fails to deliver on some aspect of their work. Don’t leave important details to handshakes and verbal agreements!
Avoid blindsiding subcontractors with last-minute requests and major changes
As mentioned earlier, the simple subcontractor agreement signing stage typically comes after most details have been provided and worked out. Therefore, it’s generally poor form to cram the contract with additional expectations.
To be clear, subcontractors will often sign these agreements anyway, especially if you’re a larger general contractor they’d want to work with again in the future. That doesn’t mean they’ll do a good job rendering those additional requested services, though. In fact, you’re essentially robbing yourself of the ability to request the exact services needed.
Last-minute concessions often don’t work out for any involved parties, whether it’s the subcontractor, general contractor, or client.
Utilize resource management software
If you haven’t already begun planning your project’s resource allocations, the subcontractor agreement signing phase is certainly not too early to do so.
Bridgit Bench offers solutions for subcontractors and general contractors alike. Learn more about how Bridgit Bench can help you manage your workers and forecast project needs. If you’re a general contractor, visit this page to learn about Bridgit Bench’s high-level functionality. Our platform helps you keep track of workforce changes and subcontractors, as well as project needs and other resources.
We hope this article has helped you understand what simple subcontractor agreements are and how to create them for your projects. For more information about construction management-related processes, visit our blog.