We’ve all heard the saying, “Put it in writing,” but why is that so important, especially when it comes to subcontractors?
When you hire a subcontractor, you’re entrusting aspects of your project to someone else and guaranteeing your client that work will be up to your standards. You might be a little wary to do that, so creating an agreement as a supplement to your bid form can help ease your worries.
Having an agreement is all about setting expectations with your subcontractors and building a beneficial, long-term relationship with them.
Here are the top reasons you need a subcontractor agreement form, plus what it should include.
There’s bound to be concerns and questions when you add subcontractors to the mix. Having an agreement will help address those beforehand so there’s no confusion.
For example, the agreement should state that all questions or requests from neighbors or other prospects regarding the project should be referred to you or someone else in your company by the subcontractor.
The sub should also relay all questions and concerns from the client to you, and that should be in your agreement. Make sure your client knows you are the main contact, and visit the site often to show the client you are still overseeing the work. That will help ease any of their worries about using a subcontractor, as well.
Create Mutual Understanding
To build a good working relationship, use the agreement to make sure you and the sub are on the same page with the project.
State what the contractor needs to provide, such as personnel, materials and equipment. They should also give you certificates of insurance for worker’s compensation, comprehensive general liability insurance and comprehensive automotive liability insurance.
The agreement needs to list what you are responsible for doing, as well, like reporting all of the payments made to the subcontractor to the IRS. That will help the project go more smoothly.
If you don’t have a solid agreement with the subcontractor, it opens the door for misunderstandings and issues. That could lead to costly mistakes and unhappy clients.
If there any changes or additions to their scope of work, you and the subcontractor will need to sign a change order before moving forward.
You should also include in the agreement that the subcontractor shouldn’t make any changes to your designs or specs without your permission.
Make sure you include what will happen if they break the agreement in any way. This can include terminating the agreement with the subcontractor and firing them from the project. If the subcontractor’s actions against the agreement cause property or monetary damages, you could state they are responsible and must make it right, which would be part of an indemnification clause. Talk with your lawyer to see what should be included.
When an agreement is broken and the subcontractor refuses to accept liability, you will need to meet with a lawyer to figure out the next step to take.
At its simplest, an agreement lets the subcontractor know what they should and shouldn’t do. You need to be clear about what’s expected so there are no misunderstandings later on.
That can include telling the sub they are not allowed to use any photographs of the project without your written permission.
You can also state they cannot have their signage on the property, except for company vehicles and equipment.
These may seem simple but can cause you issues if not covered from the start.
Keep Track of Numbers
Just like with a client contract, you’ll want the subcontractor agreement to include important dates and payment structures or have it refer back to the bid form. This will remove any confusion about deadlines or when they will receive compensation for their work.
Start by including the start and completion dates, referring to the bid form as needed.
You should also include how and when you will pay the sub. Here’s an example of what to add:
- The subcontractor shall be paid a 50 percent deposit before starting the project.
- The subcontractor shall be paid the remaining balance owed when [your company name] receives the final payment from the client.
The Bottom Line
You want the project to go as smoothly as possible, so it’s important to set expectations with the subcontractor by creating an agreement.
Some of the main points to make within the agreement are deadlines, responsibilities, how to handle changes and who should answer client questions.
A sound agreement is a must and will keep you and the subcontractor happy and help prevent liability issues for both sides. Meet with a lawyer to make sure your agreement meets all requirements and is legally binding.
If damages or accidents do occur, you can refer to the common work area rule, which came from the Michigan Supreme Court after a general contractor liability case. To determine your liability in a subcontractor situation, consider these three questions:
Did you fail to take reasonable steps within your supervisory and coordinating authority?
Did you guard against observable and avoidable dangers?
Is there a high degree of risk to a significant number of workers in a common work area?
Of course, the answers to these questions can be subjective, but they are a good place to start when issues arise. A lawyer can help you better understand how to limit liability issues.
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