Subcontractor Agreement: From Contract to Execution

subcontractor agreementWorking on large projects will mean you must have a strong ability to manage others. The efficient management of a project as well as the people skills necessary to get the job done is what sets apart a strong manager or contractor from the rest.

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What is a Subcontractor?

A subcontractor is a person or a business that signs a contract to engage in a particular part, or several parts, of a larger contract for someone else (which can also be a person or business). At its most basic ‘sub’ means below. So the subcontractor is below the general contractor or even project manager. If you are not used to managing others and need a better understanding, take Udemy’s introductory course on quality management. Either one will help you navigate the ins-and-outs of working with others.

Most commonly, subcontractors are used in building works and engineering jobs as well as in the digital and technological fields. The main reason to hire a subcontractor is often to reduce the overall cost of the services while receiving a specialist’s level of knowledge. An example in construction would be hiring a mason for a home’s stonework. The general contractor may not be skilled in masonry and so hires a specialist – or subcontractor to do the job. This results in a diversification of skill and in the end a stronger project outcome.

Creating a strongly worded agreement between yourself and the subcontractor is important. It will put you on solid legal ground. There can be no miscommunication moving forward, and all interests are protected.

What Goes into a Subcontractor Agreement?

Like any other contracts, a subcontractor’s agreement needs to be in writing. Without this it is very hard to enforce any of the information or work agreed upon. Make sure to state the name of the general contractor and the name of the subcontractor as well. If the subcontractor has employees working for him or her it is important that reference be made to them. Their actual names do not need to be listed however.

Next you have to identify the location of where the work is to be performed. This seems fairly obvious, but as with most contracts and agreements full disclosure of all information is the most secure way to ensure that work is done where and how it was expected.

After this the subcontractor agreement should focus on what the work to be done is. This is a very important section because it will be specific for each type of subcontractor. Using templates is a faster method to create these agreements and get to work. If you are using templates be sure that this section (along with names and locales) is left blank, or with enough room to specifically list the work that is required. Make sure to list all the work duties that were agreed upon during the first meetings. Also be sure that the style of description of these jobs make sense and are agreed upon. During this period it is always a good time to discuss any disagreements. Furthermore make any necessary revisions to this section or its languages before moving on.

Materials

The cost of materials and who pays for them is a large part of the subcontractor agreement process. The specifics of the materials section will depend on what the general contract and the subcontract agree to. Whether the subcontractor agrees to pay for the materials or whether those costs will fall on the general contractor does not matter. All that matters is that whatever is agreed upon is clearly stipulated in the contract. For a better understanding of cost bases and material costs in general, including how to manage them, take Udemy’s course on how to manage project costs. It will give you the best idea of how to handle the numbers on your next project.

This means the contract should have a section listing what those materials are. Be sure to include a description, numbers, costs, and anything else that might apply. It is equally important that there be language included here that stipulates who will pay for materials not listed, should the need arise. Though the general contractor and subcontractor will do their best to decide in advance what might be needed, there is always the possibility that materials may be required after the fact. Therefore, it is necessary the agreement state who will be responsible for those items in the event they are needed later on.

Estimated Cost and Payment Plans

More often than not, a subcontractor will make a guess as to what the cost of services is going to be. This is called an estimate and it is standard part of the subcontracting process. The reason for making an estimate is that every job is slightly different, and many factors will go into setting a price. Making an estimate is a skill and comes from years of expertise. However, if clear language is not used on the contract it can become a problem if an estimate is exceeded or not met. It is always good to draw up a section of the contract that deals with overages and where the cost will fall.

More often than not, as is traditional, contracts are paid in increments over the entire project. The subcontractor agreement should contain a clear and specific schedule for payment. The most common schedule is twenty five percent of the contract price upon signing, then another twenty five percent at each quarterly interval. This is not a required schedule and it is up to the general contractor to decide on what the best schedule for the project will be.

Penalties Upon Completion

Most subcontractor agreements have a section (or clause) in which information is stated concerning completion times. It is not uncommon to reduce the fees associated with the project if the work is not completed on time. There can also be a system of penalties written into the subcontractor agreement if work is late. This is less of a punishment than an incentive to keep the workflow running smoothly. It is very important that this section also contain language in regards to delays that are not the subcontractor’s fault. If a natural disaster occurs, a police or fire emergency, or medical issue arises it should not be at the detriment to the subcontractor.

As with any written agreement or contract it is not valid until both parties sign it. Furthermore, make sure that each party gets a copy to take with them. If each party has a copy it is easier to avoid conflict if one party claims something against the other.

Taking on a large project will mean having to hire subcontractors beneath you and to do this you will need the skills to handle that kind of management. Take a look at these basic steps to project management to get a better idea of what you can do to keep your project running smoothly. Don’t forget to check out Udemy’s Master Class on Project Management for the best education in being the best project manager.