When do contractors need subcontractor agreements?

A contractor chooses to seek a sub-contractor when they feel that the resources and the skill is limited to perform the task that they have contracted to perform. A subcontract comes into existence basically when the task in hand is too complex and tedious to be done by the contractors themselves and they contact a specialist to perform that task. It is essential to have a documented subcontractor agreement in place that precisely reflects your commitments under the current contract with your client. This is necessary because you need to be clear about who is in charge of fixing any problems that might develop as a result of the subcontractor’s work.

What needs to be included in a subcontract?

A subcontract is a contract between the original contractor and the specialist, however, it is crucial to make the subcontractor (specialist) understand the terms and conditions of the main contract so they are also able to follow the requests of the client. 

To make them understand the requests of the client and other obligations, the subcontract usually include but are not limited to the following clauses:

• outlining the obligations of the subcontractor.
• specifying the payment details.
• listing out the tasks that need to be done and the responsibility to complete the work in a set time frame.
• If there is an option to further subcontract.
• The circumstances in which the agreement will be terminated by either party. 
• Dispute resolution methods.
• Restraint clause which prevents the subcontractor from directly engaging with the client or competing with your business.
• Any intellectual property and confidentiality concerns. 

What are the duties of the Contractors?

The first and the foremost duty while subcontracting is to ensure that you have the right to subcontract. The right to subcontract would be clearly outlined in the agreement with the client. After ensuring you have the right to subcontract, the contractor has the duty to ensure that the subcontractor does not defect in its performance or does something that violates the contractor’s agreement with the client. 

As the contractor is engaging the subcontractor to act on their behalf, any mishap or inefficiency by the subcontractor will hold the contractor responsible. However, you can negotiate with the subcontractors to ensure you are not held accountable. This can be done by making the subcontractor responsible for their own deeds and acts and mentioning it in the subcontractor agreement.

Disputes resolution

Disputes arise on all fronts, however in the legal world it is always better to have a clear method of dispute resolution and a clear contract so that a dispute is less likely to arise. Planning ahead at the beginning can save both parties a lot of court time and thousands of dollars. 

Disputes can be where there is a defect or delay in the work of the subcontractor or maybe some other issues arise for their work. Therefore, it is better to have a clear subcontractor agreement and mention all the aspects of the dispute resolution clause properly. Additionally, the clause may also include the requirement to participate in an arbitration or mediation, where an independent third party will look into the matter and the resolution negotiations.

Takeaway

A subcontractor agreement consists of numerous ways in which the contractor and the subcontractor can work together and complete the task with much more efficiency. A well drafted agreement can assist in preventing misunderstandings and disputes in relation to the work done by the subcontractor. The agreement should reflect the existing arrangement between the client and the contractor so that it is easy for both the clients and the contractor to understand their obligations and their legal responsibilities. It is also crucial to understand that the subcontractor is not an employee, and has their own business and should be given the freedom to fulfil their own work in the best interest of both the parties.