Subcontractor Agreement

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Subcontractor Agreement

A Brief Introduction About the Subcontractor Agreement?

A subcontractor agreement is an agreement entered into by a contractor and a subcontractor for the performance of a particular job. The contractor has certain tasks assigned to him under a contractor agreement. Through the subcontractor agreement, the contractor hires a subcontractor to perform some of the tasks that the contractor had originally contracted to perform under the contractor agreement. Hence basically, this agreement is required for the contractor to direct the subcontractor to perform specific tasks that the subcontractor specializes in.

Where the construction of a project is concerned, there are various jobs involved, and it might not be possible for the contractor to perform all of them on his own. It is for this reason that the contractor hires one or multiple subcontractors and distributes the various tasks among them. The subcontractor agreement puts into writing the terms that have been agreed to between the contractor and the subcontractor.

Who Take the Subcontractor Agreement – People Involved

A subcontractor agreement is entered into between a contractor and a subcontractor. A contractor is a person who has been hired by an organization for the performance of certain jobs for such organization. In order to perform this job well, the contractor may need to hire another person to provide the contractor with particular goods or services. Such other person hired by the contractor is known as a subcontractor as the contractor subcontracts certain tasks to the subcontractor.

Purpose of the Subcontractor Agreement- Why Do You Need It?

The purpose of a subcontractor agreement is to lay down in writing the terms and conditions under which the subcontractor shall perform his duties. This agreement is essential to provide a framework as to how the work shall be carried out and how the subcontractor shall be compensated for the same. For example, in a construction subcontractor agreement, the clauses will lay out what jobs will be performed by the subcontractor with respect to the construction, how much he will be paid for such job and various other terms that have been agreed to mutually between the parties.

It is important to have all the important terms written down in detail so as to prevent any confusion in the future and to avoid any conflict. When such an agreement is in place, it helps the parties have a complete understanding of the entire transaction and leaves no room for any error or misunderstanding.

The purpose of the agreement is to protect the rights and interests of the parties in case of a violation of the terms agreed to by the other party. This agreement helps to have written proof of the specific details agreed to by the parties. Additionally, the contract will also provide for remedies to make sure that each party can protect their rights under this agreement. The various acts that can be deemed to be a breach of the agreed terms will be listed out, and a remedy will be provided for each one of them.

Contents of the Subcontractor Agreement

A subcontractor agreement should include the following points so as to make it fool-proof and to ensure that all important factors are mentioned:

  • Scope of work: The agreement should clearly define the scope of work that shall be undertaken by the subcontractor. This clause should detail what tasks must be performed by the subcontractor and the time period within which it should be performed.
  • Term of the agreement: There should be a clause in the agreement that provides for the term of the agreement and what is to be done in case the performance of a task exceeds the term of the agreement.
  • Payment: This is the most important clause in the agreement. The amount that will be paid to the subcontractor for each hour that he carries out the assigned work should be clearly mentioned. Other factors such as whether the contractor will reimburse the subcontractor for expenses such as travel or any other costs must also be laid down in the agreement.
  • Termination of the agreement: There must be a clause in the agreement detailing in what circumstances each of the parties may terminate the agreement and how the subcontracted work will be dealt with after such termination.
  • Indemnification: Indemnification clause will state that the subcontractor will protect the contractor from any damage caused by the negligent acts of the subcontractor.

How to Draft the Subcontractor Agreement

The following are the steps to follow while drafting a subcontractor agreement:

  • The contractor and the subcontractor must decide all the important terms and conditions regarding the work that is being subcontracted such as the scope of the work to be performed, the terms of the payment, acts that will amount to a breach of the clauses of the agreement, remedies in case of a breach of the contract by the other party, etc.
  • All the decided terms must be laid down in the agreement itself, and there must be no room for any doubt regarding the intentions of the parties.
  • The agreement must be thoroughly reviewed by both parties to ensure that their rights and interests are adequately protected under the agreement.
  • The agreement must be signed by both parties. This will ensure that the agreement is binding in nature.

Negotiation Strategy

  • The negotiation strategy to follow is to make sure that the clauses of the agreement are equally balanced between both parties. It must not be tilted in favour of any one party.
  • The subcontractor must be adequately compensated for the work done by him, and the contractor must be protected from negligent acts of the subcontractor.

Benefits and Drawbacks of the Subcontractor Agreement

The following are the benefits and drawbacks of having a subcontractor agreement:

  • Having a written agreement in place helps both parties to reach a consensus on the various specific details that are involved in the subcontracting of the tasks by the contractor and avoids any confusion or misunderstanding in the matter.
  • This agreement helps to protect the contractor from any act of the subcontractor that is negligent or an act that amounts to a breach of the clauses of the agreement. The contractor will not be held liable for any misconduct on the part of the subcontractor.
  • In the absence of such a written agreement, there will be no solid proof of the various specifics of the transaction such as whether a certain action
  • performed by the subcontractor falls within the ambit of the agreement or whether the contractor has defaulted on making a payment to the subcontractor. In such cases, it will be difficult to prove that a breach of the agreement has taken place and that the rights of a party under the agreement have been violated.
  • If such an agreement is not in place, both parties may have limited or no remedies available in case there is a breach of the clauses of the agreement by the opposite party. The agreement will have a dispute resolution in place, and this will help the parties reach a solution if a dispute arises with respect to the terms of the agreement.

What Happens in Case of Violation?

Every subcontractor agreement will have a provision that provides for the remedies or actions that are to be taken when any clause of the agreement is breached by one of the parties thereto. Parties generally prefer to insert a mandatory arbitration clause as it is a fast and relatively easy method of resolving a dispute. Hence whenever any dispute arises with respect to the terms of the agreement, such dispute will be resolved by arbitration. The arbitration clause can provide for the number of arbitrators and the place where the arbitration proceedings will be conducted.

If the parties so desire, they can also select any other method of dispute resolution such as mediation or negotiation(1). These alternate methods yield much faster results than approaching the courts of law(2).

In conclusion, a subcontractor contract is an essential agreement when a contractor wishes to designate certain tasks to a subcontractor. This is done as the contractor may not be able to perform all of the tasks that have been assigned to him under the original contractor agreement. Hence the contractor hires a subcontractor for the supply of certain goods or provision of certain services and creates a subcontractor agreement to clarify the terms of the work to be performed by the subcontractor. The agreement is very important as it gives solid evidence of the fact that the contractor has subcontracted certain work to the subcontractor.