When a project's contractor needs to divide the contract and delegate some of the work to other businesses or people, they employ a subcontractor agreement.

It is typically annexed to the contractor's contract with the client and describes the obligations of the subcontractor.

How Do Subcontractors Work?

An individual or business that works in a specialized industry and offers services to a contractor for a set price is referred to as a subcontractor.

The most prevalent example is in the building when the general contractor schedules and funds the entire project before subcontracting with carpenters, electricians, plumbers, and other tradespeople to finish the project.

Subcontractors might be independent contractors, local business owners, or suppliers of specific goods. They are autonomous businesses acting as their own clients, not the general contractor.

Subcontractor versus Employee

An employee is primarily distinguished from a subcontractor by the fact that the former works for the latter's employer. An independent contractor providing services to the main contractor is a subcontractor.

These are some of the main variations between the two:

Tools and Resources
In contrast to subcontractors, who normally own the tools and equipment and transport it to the job site, employees receive tools and equipment from their employers.

Benefits, Taxes, and Wages
Employers pay their employees hourly wages or salaries and deduct payroll taxes from those amounts. Benefits from companies to employees include paid time off, holiday pay, and pension programs.

Subcontractors are paid on a project-by-project basis and are in charge of their own taxes and insurance.

Jobs duties
While subcontractors are recruited to do a specific project within their area of expertise as outlined by the contract, employees are employed by their employers to perform a variety of job functions and activities.

Disciplinary measures
Employers may discipline their employees, which may result in termination of employment.

Although the contract can be terminated if the contractor is ready to cover the costs of a breach, contractors are not allowed to fire their subcontractors.

The hiring process of a subcontractor

Hiring a subcontractor can be a streamlined process when you break it down into essential steps. Here's a concise hiring process for a subcontractor:

1. Identify Project Needs:
   • Determine the specific tasks or services you need the subcontractor to perform on your project.

2. Search and Prequalification:
   • Search for potential subcontractors through industry referrals, online directories, or your network. Prequalify candidates based on their expertise and qualifications.

3. Request for Quotes (RFQ) or Proposals:
   • Send out RFQs or request proposals from selected subcontractors, providing project details and scope of work.

4. Review and Compare Bids:
   • Evaluate the received bids, considering factors like price, qualifications, and past performance.

5. Interview and Select:
   • Conduct interviews or meetings with shortlisted subcontractors to discuss their bids and assess their compatibility with your project. Choose the subcontractor that best fits your needs.

6. Negotiate Terms:
   • Negotiate terms and conditions, including payment terms, deadlines, and responsibilities.

7. Draft a Subcontract Agreement:
   • Create a subcontractor agreement that outlines the terms, scope of work, and contractual obligations.

8. Insurance and Licensing Verification:
   • Confirm that the subcontractor has the necessary insurance coverage and licenses to legally perform the work.

9. Start the Work:
   • Once the agreement is signed and all terms are agreed upon, authorize the subcontractor to begin work on the project.

10. Payment and Closeout:
    • Establish a payment schedule and process for reviewing and approving invoices. Close out the subcontract once all work is completed to satisfaction and all payments are made.



What needs to be included in the Subcontractor Agreement?

A subcontractor agreement should include the following:

• Date of contract
• Primary or general contractor
• Subcontractor
• Detail of services
• Compensation
• Date and type of compensation (i.e., in full, installment, upon completion)
• Reimbursement of expenses
• Term of service
• Termination
• Acknowledgment of independent contractor status
• Confidentiality clause
• Ownership of work product clause
• Insurance
• Non-compete/non-solicitation clauses
• Dispute resolution clause
• Contractor signatures
• Subcontractor signatures



How To Write a Subcontractor Agreement

Here's a simplified guide to creating a subcontractor agreement

Step 1: Title and Parties

• Begin by stating the title of the agreement, such as "Subcontractor Agreement." Identify the parties involved: the contractor (you) and the subcontractor.



Step 2: Scope of Work

• Clearly describe the scope of work the subcontractor will perform. Specify tasks, deliverables, deadlines, and any relevant details about the project.



Step 3: Payment Terms

• Outline the payment terms, including the subcontractor's rate, method of payment, and any agreed-upon milestones for payments.



Step 4: Schedule and Deadlines

• Specify project timelines and deadlines for the subcontractor's work. Include start and end dates, as well as any key milestones.



Step 5: Materials and Equipment

• Clarify who is responsible for providing materials, equipment, and tools needed for the subcontractor's work. Specify any requirements or standards.



Step 6: Insurance and Liability

• Describe insurance requirements, including any necessary liability or workers' compensation insurance. Specify that the subcontractor should maintain their own insurance coverage.



Step 7: Confidentiality and Non-Compete

• Include clauses regarding confidentiality and non-compete agreements, if applicable. Ensure the subcontractor understands their obligations in protecting sensitive information.



Step 8: Termination

• Define conditions under which either party can terminate the agreement. Include notice periods and procedures for dispute resolution.



Step 9: Compliance with Laws

• State that the subcontractor must comply with all applicable laws, regulations, and permits related to the work. This may include safety standards, licensing requirements, and tax obligations.



Step 10: Signatures and Date

• Provide space for both parties to sign and date the agreement. This signature makes the agreement legally binding.



Additional Tips:

• Be clear and concise in your language.
• Consult with legal counsel to ensure compliance with local laws.
• Customize the agreement to suit the specific project and subcontractor.
• Keep a copy of the signed agreement on file for reference.



A well-crafted subcontractor agreement helps prevent misunderstandings, ensures a clear understanding of expectations, and provides legal protection for both parties involved in the subcontracting arrangement.

Subcontractor Agreement Sample