Experienced contractors and construction leaders like you know that projects come with various requirements, conditions and details to cover. From top to bottom, project managers are there to make sure that every part of the contract is covered.
Working with subcontractor firms and suppliers is part and parcel of nearly every project. Many of these companies either offer specialized services not covered by a lead contractor, or they provide the materials, equipment and supplies needed to help get the job done safely, correctly, on schedule and within budget. Partnering with these companies is not only necessary for meeting your contractual obligations, but it’s also good business sense.
Making a Subcontract
Whether you’re providing construction services for a particular project or retained as an on-call provider, your projects and assignments are defined by a formal contract with a client. This legally binding document usually includes the following:
- The type of contract
- The scope of work to be done
- Project risk and ownership
- Legal obligations of the owner or client and the contractor
- Duties of all parties
- Insurance and bond requirements
- Terms and conditions of project acceptance
- Terms of payment
- Warranty terms
- Subcontractor agreement details
Just as you have a contractual agreement with a client, a subcontractor agreement defines the work, terms and conditions of another firm providing services to yours. It is incumbent on you as the prime or main contractor to clearly outline the terms of other companies’ services to make sure they’re appropriately compensated for services rendered as defined and signed in your agreement.
Understanding the Need for a Subcontractor Agreement Form
When it comes to your contract, there’s really no subcontracted work that is too small to be formalized with a signed agreement. Having a signed subcontract agreement form protects both your company as well as the subcontracting form, especially if there are disputes about the scope of work, requirements, confidentiality and other conditions. This agreement is legally binding and can serve as the basis for reviewing whether there’s been a breach by either party or failure to hold up their end of the deal. Your subcontracting partners are not employees, and there are laws that apply to workers that don’t apply to independent contractors and vice versa.
Construction companies that do business with government entities are often required to subcontract a certain percentage of work to firms, especially when there is federal or other taxpayer money used to fund projects. In these scenarios, your client may have requirements that dictate how you procure a subcontractor on your team. A subcontractor agreement form can be created and drafted to be compliant with client conditions and qualifications. You may even have to provide a sample subcontractor agreement to demonstrate that you’re qualified to do work for a government agency or authority. These agreements help to ensure that everyone is doing what they should.
Moving Toward Consistency
Projects of a certain size, duration and complexity may require you to have several subcontractors on your team. Between electricians, trucking services, materials testing, waste disposal services and more, it’s not only easy to lose track of terms and conditions but your subcontracting may be inconsistent and inadvertently noncompliant. A subcontractor agreement template helps your company put together agreements that are complete, correct and consistent. The firms you subcontract with are your partners, and consistent contracts help build a sense of trust for improved working relationships, collaboration and successful pursuit of future opportunities.
Covering Your Bases
Because your subcontract agreement is legally binding, it’s important to take a close look at some of the typical items to include, especially when developing a subcontractor agreement template:
- Scope of work: The scope details the work that the subcontracting firm will complete. This should be very specific, as a broad, vague description is difficult to adhere to or defend. Sometimes the scope is defined as a list of services, specific limits or extents of the work to be done, or a specific duration of work. For example, a company providing internet services for a field office may do so for a particular length of time.
- Operational risk: As a contractor, you will assume certain risks, especially while a project is under construction. Some of these risks may be borne by a sub firm. The agreement should be clear about who is responsible for what, especially for those that may arise due to the actions or inaction of a third party.
- Indemnity and defense language: Another thing an agreement should be clear on is indemnity. What if your company experiences loss as a result of the subcontractor’s actions or vice versa? What protection is there against these losses? Many states and jurisdictions have laws about using indemnity language that puts an undue or unfair burden on a subcontractor. Compensation limits should also be clearly stated.
- Insurance requirements: As a construction company, your clients expect you to carry insurance products such as workers’ compensation, builder’s risk and general liability. These requirements may or may not extend to your subcontractor, so it’s important to let any partners know what type of coverages they’ll need in your subcontractor agreement form.
- Warranty: Depending on the type of services provided, the subcontract should provide specifics about warranties. While a warranty of the subcontractor’s work is ultimately to your benefit as the prime contractor, this also allows your sub partners to make repairs should a problem or flaw arise without affecting their reputation or credibility.
- Confidentiality: In the course of doing business, a subcontracting partner may become privy to information that is privileged. This could be intellectual property or specialized knowledge. Your agreement should include language that prevents a subcontractor, supplier or vendor from divulging details about your company, your projects or processes. Confidentiality clauses can also include language about conflicts of interest, solicitation or competition. For example, let’s suppose a competitor wants to hire a sub firm to do similar services. You’ll want your agreement to be clear about what your sub may or may not share with a competing contractor.
- Contract disputes and claims handling: A subcontractor agreement in construction should address how contract disputes are to be addressed. Many subcontracts limit handling to arbitration, which prevents a sub firm from filing a lawsuit.
- Terms of payment: Conditional payment clauses are becoming more common in subcontracts. It is critical to define how and when a subcontractor will be paid. If payment is contingent upon you receiving payment from the client, that should be made clear and upfront in the agreement. Language such as “pay if paid” or “pay when paid” may put your subcontractor in a bind financially. Depending on the type of clients you serve, you may be expected to pay the subcontractor whether you’ve been compensated or not, which can impact your cash flow.
Administering Subcontracts Quickly
One of the benefits of having a subcontractor agreement template or form is the ability to quickly draft and distribute an agreement with a new firm or update an existing agreement based on changing conditions. Let’s suppose you’re managing a federally funded project that requires a certain portion of your work to be completed by a certified small or disadvantaged business enterprise. The subcontracting firm has already done a certain amount of work when you learn that while it’s certified as a small business for some services, it’s not certified for the work done. You need to find another firm and put together a subcontract quickly to follow federal regulations.
By this point, you can appreciate the utility of an electronic subcontractor agreement system that can be used to draft, distribute, update and maintain subcontracts. Such a system can update agreements based on project location and the applicable subcontracting rules. You can maintain a collection of subcontractor agreement examples and templates for quick creation and distribution to firms. Sometimes the person who is authorized to represent and certify on behalf of a subcontractor is not located within the same city, region or country. The importance of a system that can be accessed remotely and signed irrespective of operating systems or platforms cannot be overstated.
Subcontracting With Fluix
The great news is that you don’t have to invent the wheel here. Fluix stands as your all-in-one solution for superior subcontracting. Create a customized approach using a powerful and lightweight system that can be scaled according to the way you do business with subcontractors, suppliers and other vendors.
With Fluix, you have a system that can generate and distribute a subcontractor agreement quickly without the need for special coding. You can formalize your internal and external subcontracting processes with automated workflows, checklists, forms completions, records management and electronic signature collection. There’s no need for special operating systems or hardware; Fluix works on any mobile device for real-time collaboration and coordination. Try Fluix out today with a free, no-obligation, credit-card-free trial.
Manage Your Construction Projects Better
- Outline project expectations
- Govern the relationship between all parties involved
- Sign agreements remotely with electronic signature