What is a subcontractor agreement?
When a contractor gets hired to perform certain work, they can elect to hire a subcontractor to perform certain tasks on their behalf - using a subcontractor agreement. However, this is only legal if the agreement between the original contractor and the party who hired them allows the employment of subcontractors.
Why a subcontractor agreement is important
Not every contractor is always able to complete all aspects of a project and therefore has to hire subcontracts for these tasks. Forming a correct and sound subcontractor agreement legally protects the contractor in the event that things go wrong. It also ensures that the subcontractor knows all the details they need to know in order to perform their task up to the required standards.
What a subcontractor agreement should include
There are a number of clauses that a subcontractor agreement should include:
- Scope of work - lays out the project details and what the subcontractor has to do.
- Duration of work - in case there are any deadlines attached to the project, they should be specified here.
- Payment & billing - details the rates paid to the subcontractor (amount, hourly vs. flat fee, performance-based wage, etc.) and how payment will be made (cash, bank transfer, etc.). Should also include a buyout clause in case the project is going badly.
- Status - clarifies that the subcontractor is an independent contractor and not a full-time employee, and is responsible for their own taxes.
- Non-disclosure - holds the subcontractor responsible not to disclose any sensitive information related to the project.
- Non-competition - ensures that the subcontractor is not allowed to work directly with the contractor’s client, even in the future.
- Work-for-hire - grants ownership of any work done by the subcontractor to the contractor
- Insurance - details that the subcontractor is responsible for their own insurance coverage.
- Assignment - whether a subcontractor is allowed to hire a subcontractor themselves or not.
- Indemnity - holds the subcontractor responsible for the quality of their work and protects the contractor in the event of any disputes related to the subcontractor’s work.
- Promises & warranties - specifies that the subcontractor has to deliver original work and is responsible for making any edits or corrections themselves, if needed.
- Arbitration - lays out how any disputes will be resolved (e.g. third-party arbitration, lawsuit, etc.).
- Termination - outlines the conditions under which the contract may be terminated prematurely, the notice period for a termination as well as payment details.
- Jurisdiction - determines which state’s local laws the project follows.
- Entirety of agreement - this clause states that only the details included in the written agreement are covered by the agreement. Anything that is not included can not be implied or assumed.