What is a Subcontractor Agreement?
There are cases when a primary contractor doesn’t have all the required labor, materials or construction know-how to deliver a project fully. In such cases, the primary contractor may engage someone who can provide some of the goods or services.
For example, say you are a marketing company and has got a project to create a website. In that case, you may hire a programmer to develop the website, and you would focus on the marketing of the website. The programmer (i.e., subcontractor) would answer to you (i.e., contractor) rather than directly to your client. You would need to create a legal document detailing all aspects of your agreement with the programmer including the scope of work for the programmer, timely to complete the work and how much he would be paid. Such a legal document is called as Subcontractor Agreement.
A Subcontracting Agreement is a legal document that sets out the terms and conditions between a contractor and subcontractor for the provision of goods or services to a third party.
Contractor or Employee?
If you intend to use the Subcontractor Agreement, you should understand the difference between a contractor and an employee. The Subcontractor Agreement template attached below allows you to hire a contractor and is very different from an Employee Contract, which allows you to hire an employee.
There are many factors that a court look at while deciding whether someone is a contractor or an employee:
- Whether one can subcontract / delegate the work
- Whether one provide his own equipment or tools required for delivering the service
- Whether one is paid based on time that he has worked, or based on a quotation for work (for example, servicing a car or painting a building)
- How much control one has – can he chose his own work hours or place of work – and how much control buyer has on how the work is performed
- Who is responsible in case something goes wrong – whether one need to rectify mistakes at his own costs or whether buyer is responsible and would suffer loss.
A buyer can’t treat an employee as a contractor as that would amount to neglecting various employment obligations such as superannuation or employee benefits and would lead to significant penalties.
A subcontractor is responsible for paying self-employment taxes, keeping his own financial records, and determining how and when work gets done. In short, his is a contractor who works with another contractor.
Why should you use a Subcontractor Agreement?
A Subcontractor Agreement protects all parties – Client, Contractor, and Subcontractor – in a professional project. This legal document outlines the scope of the work, deadlines, and payment terms. It clarifies responsibilities, from work to insurance coverage, and provides an important legally binding framework for the project.
Subcontractor agreement is important for risk management for a job. When you hire someone to do some work or provide some goods, you wouldn’t want to take any liability arising out of his work. Would you? The Subcontractor Agreement would protect you from such liabilities and lower your insurance costs and shorten time to deliver a project by clarifying the specifics of your relationship with your subcontractor.
Are Subcontractors allowed?
Before hiring a subcontractor, you must check whether your main agreement with your client allows for the use of subcontractors. Sometimes subcontractors are not allowed, and if they are, you may need prior consent of the client, or there may be some restrictions on their use, such as will you (contractor) be liable for damages if your subcontractor behaves irresponsibly or cause harm to the client?
If you fail to abide by the terms of subcontracting outlined in your main agreement, your client may sue you for any damages caused by your subcontractor as the client is not going to chase subcontractor when he can reach you.
How to use Subcontractor Agreement?
The Subcontractor Agreement template attached below can be customized for an on-going project or a one-off project. In either case, by providing more details about the subcontractor arrangement, you are more likely to prevent any disputes later on. Here are some of the key details that you should consider providing:
- Scope of work to be performed
- Criteria to determine whether the work is completed
- Time frame for completion of work
- Payment terms and schedule of payment release – is it hourly, flat fee or project based? Is there any budget? Is there any penalty for late payment?
- Whether the main contractor has already entered into a main contract
- Whether the subcontractor will be responsible for everything agreed in the main contract or only certain aspects
- Whether the subcontractor will indemnify the main contractor in respect of any work performed by the subcontractor
- If there is any agreed limit of liability for both the contractor and the subcontractor
- What will happen is the agreement is terminated
- How to resolve disputes
- Address necessary legal terms such as non-compete, non-solicitation and confidentiality, as appropriate
- Who owns the creating product for services such as software development
The Subcontractor Agreement is legally binding when it is signed by both you and the client and is dated. Both the parties should keep signed copies.
Subcontractor Agreement Template
This Subcontractor Agreement (this “Agreement”) is made and entered into this _____ day of ________, 20__(the “Effective Date”), by and between:
The Contractor (the “Contractor”):
of the following address:
and the Subcontractor (the “Subcontractor”):
of the following address:
The Contractor has existing or prospective customer (the “Customer”) contracts (the “Services”) for which the Contractor may require support, and wishes to hire an independent contractor (the “Subcontractor”) to provide the following described labor, materials and constructions in accordance with the plans and specifications as may be referred herein by reference, upon the following described property:
of the following address:
The Subcontractor has the required qualifications, skills and experience to provide the Services and agrees to provide the Services to the Subcontractor on the terms and conditions set out in this Agreement.
IN CONSIDERATION OF the matter described above and of the mutual benefits and obligations contained hereinafter, the sufficiency and adequacy are hereby acknowledged, intending to be legally bound, the Contractor and the Subcontractor (individually the “Party” and collectively the “Parties” to this Agreement) agree as follows:
1. SCOPE OF WORK
The Contractor shall have no obligation to award any work under this Agreement. However, in case any work is awarded to the Subcontractor, the Parties agree that such work will be subject to the terms and conditions of this Agreement and in accordance with Task Order issued by the Contractor.
2. TASK ORDER
A Task Order (the “Task Order”) authorizes work to be performed and/or materials to be delivered by the Subcontractor, is in effect and duly authorized only upon written agreement by the Parties and comprises of the following information:
- Description of all work to be performed by the Subcontractor (the “Services”) and products and materials to be provided by the Subcontractor (the “Deliverables”)
- Duration and schedule of Services and Deliverables
- Whether Services and Deliverables are to be provided by the Subcontractor at an agreed upon fixed price (“Firm Fixed Price (FFP)”)
- Whether Services and Deliverables are to be provided by the Subcontractor at an hourly rate (“Time and Material (T&M)”) wherein the actual cost of hours worked and materials used in the performance of the Services are charged to the Contractor.
- Hourly Rate(s) (if T&M)
- Price (per Deliverable and/or milestone if FFP)
With written notice to the Subcontractor, the Contractor may change any requirement in a Task Order relating to undelivered Services and/or Deliverables. If such change reasonably affects the price or schedule, the Subcontractor will notify Prime within 30 business days of such, and the parties will negotiate an equitable adjustment in price and schedule and make appropriate amendments to the applicable Task Order.
In the event of conflict or inconsistency between this Agreement and a Task Order, the terms and conditions of this Agreement shall take precedence, unless specifically stated otherwise in the Task Order.
3. TERM AND TERMINATION
The term of this Agreement shall commence on the Effective Date and end 1 year thereafter (the “Term”) unless either party serves 30 days written notice on the other of its desire to terminate this Agreement. The Term of this Agreement may be extended by the written consent from both the Parties.
Should a Task Order be authorized during the term of this Agreement, which provides for completion subsequent to the end date of this Agreement, then the Task Order shall be additionally construed as a written modification of this Agreement, which extends the end date of this Agreement to coincide with the Task Order completion date.
The Contractor shall compensate the Subcontractor in accordance with the applicable Task Order.
All T&M work will be paid for at the applicable hourly rate(s) specified in the Task Order. Unless otherwise specifically agreed to in advance by the Contractor, the Subcontractor is solely responsible for the payment of any overtime compensation to its employees and will not seek any such compensation from the Contractor. By execution hereof, the Subcontractor certifies that the rates charged by the Subcontractor do not exceed the lowest rate charged to others for services of the same nature as are to be provided under this Agreement.
All FFP work will be paid as per the price and milestones specified in the Task Order.
The Compensation does not include sales tax or other applicable fees, tariffs and duties as applicable by the law. If the Contractor is required by law to make any deduction or to withhold from any sum payable hereunder, then the sum payable by the Contractor shall be paid to the Subcontractor net of such legally required deduction or withholding. Any such taxes will be itemized separately in the Subcontractor’s invoices.
5. CUSTOMER INTERACTION
The Subcontractor may have direct communication with the Customer during the period of performance of a Task Order. The Subcontractor agrees to limit communications with the Customer solely necessary for provisioning of Services and/or Deliverables. The Subcontractor further agrees to disclose any potential follow-on work or additional opportunities related to the Services and Deliverables to the Contractor.
Each party (in such capacity, the “Receiving Party”) acknowledges and agrees to maintain the confidentiality of Confidential Information (as hereafter defined) provided by the other party (in such capacity, the “Disclosing Party”) hereunder or under the Agreement.
Confidential information (the “Confidential Information”) refers to any information which is not in the public domain and commercially valuable to either of the Parties.
Both Parties hereby agree that they shall: (i) not disclose Confidential Information to any third parties throughout the duration of this Agreement and for a period of 3 (three) year following the termination of this Agreement, and (ii) Not use the Confidential Information for any purpose except those detailed herein or expressly authorised by the Disclosing Party.
7. LIMITATION OF LIABILITY
NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR ANY SPECIAL, INDIRECT, INCIDENTAL, CONSEQUENTIAL (INCLUDING LOSS OF PROFIT), EXEMPLARY OR PUNITIVE DAMAGES WHETHER IN CONTRACT, TORT OR OTHER THEORIES OF LAW, EVEN IF SUCH OTHER PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
THE TOTAL CUMULATIVE LIABILITY OF CUSTOMER ARISING FROM OR RELATING TO THIS AGREEMENT SHALL NOT EXCEED THE TOTAL AMOUNT PAYABLE TO SUBCONTRACTOR UNDER THE AGREEMENT THAT GIVES RISE TO SUCH LIABILITY; PROVIDED, HOWEVER, THAT THIS LIMITATION SHALL NOT APPLY TO ANY LIABILITY FOR DAMAGES ARISING FROM (A) WILLFUL MISCONDUCT OR (B) BREACH OF CONFIDENTIALITY OBLIGATIONS OR (B) LIABILITY FOR INFRINGEMENT CLAIMS.
8. INTELLECTUAL PROPERTY
During the delivery of the Services as per the terms and conditions of this Agreement, The Subcontractor may create certain intellectual property (the “Intellectual Property”) that may include plans, designs, drawings, specifications, forecasts, analyses, evaluations, source code, artwork or any other intellectual property as required to deliver the Services to the Contractor. Unless the Parties otherwise agree, any such Intellectual Property created by the Subcontractor during the course of providing the Service will belong to the Contractor.
During the Term of this Agreement and for a period of 1 (one) year following the termination of this Agreement, the Subcontractor, as well as their employees, agents, and/or representative, agree to refrain from engaging, directly or indirectly, in any form of competition including, but not limited to, through marketing, consulting, advisory, investment or financial activities with the Contractor. The Subcontractor further agrees that the Contractor is as an exclusive representative of the Customers to whom Subcontractor is introduced and/or to whom Subcontractor is assigned by the Contractor.
To the extent permitted by the law and paid in settlement from any applicable insurance policies, each Party agrees to indemnify and hold harmless the other party, as well as their employees, agents, and/or representative, any and all claims, damages, losses, penalties, expenses, reasonable legal fee and costs of any kind or amount whatsoever which results from any act or omission of the indemnifying party that occurs in connection with this Agreement. This indemnification will survive the termination of this Agreement.
11. TIME FOR PERFORMANCE
Time is of the essence for the performance by the Service Provider under this Agreement. Any default of any date or time specified in this Agreement shall be in breach of this Agreement.
Without the prior written consent of the Contractor, the Subcontractor may not subcontract, either in whole or in part, Services authorized by a Task Order.
If the Contractor consents to subcontracting, the Subcontractor must first obtain, from each subcontractor, a written agreement that is the same as, or comparable to, the following Sections of this Agreement: Customer Interactions, Intellectual Property, Confidentiality, Non-compete, Subcontracting, Indemnification, Limitation of Liability, Insurance and any other flow-down provisions contained in the applicable Task Order.
The Subcontractor agrees to maintain adequate insurance coverage and minimum coverage limits for its business as required by any applicable law or regulation, including Workers’ Compensation insurance as required by any applicable law or regulation, or otherwise as determined by the Subcontractor in its reasonable discretion. Further, the Subcontractor agrees that any lack of insurance coverage shall limit any liability the Contractor may have under this Agreement or any Task Order issued hereunder.
14. GENERAL PROVISIONS
a. DISPUTE RESOLUTION AND GOVERNING LAW
This Agreement shall be governed by and interpreted in accordance with the laws of the State of ____________, without giving effect to its principles governing conflicts of law.
b. ENTIRE AGREEMENT
This Agreement set forth the entire understanding of the parties with respect to the subject matter hereof and thereof. This Agreement supersedes all prior or simultaneous representations, discussions, negotiations, letters, proposals, agreements and understandings between the parties hereto with respect to the subject matter hereof, whether written or oral.
This Agreement may be amended, modified or supplemented only by a written instrument duly executed by an authorized representative of each of the parties.
Any provision of this Agreement that is determined to be invalid or unenforceable in any jurisdiction shall be ineffective to the extent of such invalidity or unenforceability in such jurisdiction, without rendering invalid or unenforceable the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction.
All notices provided for or permitted under this Agreement shall be deemed effective upon receipt, and shall be in writing and delivered to the Parties.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized representatives as of the Effective Date.
Name of the Contractor
Signature of the Contractor
Name of the Subcontractor
Signature of the Subcontractor
Do you need help with drafting or reviewing Subcontractor Agreement?
Are you service provider (or a service buyer) and looking to tighten your Subcontractor Agreement to cover all aspects of confidentiality, intellectual property, scope of work and dispute resolution?
We can help you draft or review your existing Subcontractor Agreement, while ensuring you are protected and get peace of mind.
Click here to reach-out to us.