When you hire a general contractor for a construction project, HVAC installation, or roof replacement, they might not always know precisely what they need to do.
Perhaps they run into a situation where a particular job requires a license the contractor doesn't have or merely doesn't have the expertise to complete it.
They typically hire a subcontractor to take care of a specific part of a contract when that happens. But before the subcontractor can start the job, they should enter a Subcontractor Agreement with the general contractor.
A Subcontractor Agreement is a straightforward contract between two parties working on the same project. The hired contractor reaches out to a subcontractor and offers them the work.
In the Subcontract Agreement, they outline the terms of the contract and the payment information. For example, if you hire a general contractor to replace drywall, but the job requires electrical work, they may hire an electrician for this one task.
The Subcontractor Agreement should contain all the necessary information about parties involved, the scope of work, change orders, dispute resolution protocol, and details about termination. It should also specify the duration of the contract.
Depending on your state, a Subcontractor Agreement may also be known as:
Subcontract Agreements are necessary in cases where you need to hire another person or a business to complete a project.
The scope of the work and the reasons for a Subcontract Agreement may vary, but it's essential to put the agreed terms in writing.
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Independent contractors often need to seek the help or expertise of other entities to complete a project. Sometimes, they need to act fast and might not have the time to create an agreement from scratch. That is why having a well-written template that covers all the bases can be beneficial.
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A Subcontractor Agreement can only be legally binding if both parties sign it. It's not necessary to notarize the agreement, and often the presence of a witness is sufficient.
To avoid any disputes and misunderstandings, read all the contract provisions carefully and negotiate the terms before signing.
Once signed, the Subcontractor Agreement is fully enforceable. It is not required to file the agreement with the court or any governing entity. However, both parties should keep a copy of the agreement on file in case they need it in the future.
Usually, a Subcontract Agreement refers to outsourced jobs for a construction project. While this is often the case, there are many other occasions when a Subcontractor Agreement is required. Sometimes a cleaning subcontractor is necessary; other times, it's an IT subcontractor.
Common types of Subcontractor Agreements include janitorial, HIPPA, solar panel installation, concrete pouring, painting, or electrical subcontractor. But you can apply this type of agreement to many more types of projects.
At first glance, it might seem that the Subcontractor Agreement benefits the general contractor more than it does the subcontractor.
One might argue that they use it to protect themselves from liability. However, it's usually the subcontractors that see more benefits from this type of contract.
It's a clear and formally written document that outlines the scope of their work, timeline, and payments. It protects the subcontractor from being held responsible for a job they weren't hired to do and receiving appropriate compensation.
There are several key differences between an employee and an independent contractor (or non-employee). First, the contractors and subcontractors are fully responsible for filing their taxes, which you calculate differently.
Furthermore, you typically offer the employee benefits from their employers, such as health insurance or pension plan. Overall, an independent contractor has more freedom in their work but is also responsible for things the employee is not.
To ensure you don't label the subcontractor as an employee, as the general contractor, you don't provide materials, training, benefits, or pay taxes for them.
Essentially, the subcontractor should not depend on the general contractor to complete the employer's task but offer a complete service.
If the subcontractor doesn't finish the job on time – or at all – or breaks the terms of the Subcontractor Agreement, the contractor can call on the dispute resolution clause.
They might refuse to pay the subcontractor or even request arbitration to resolve the issue. The same applies if the contractor doesn't pay the subcontractor or abide by the terms of the agreement.
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