What is a Subcontract Agreement
A subcontract agreement is a contract between General Contractors and a Subcontractor. This document solidifies any agreement between the two parties and assures payment for work provided. Any Subcontractor should read the subcontract agreement and assure protect themselves from risk. Many documents layout the exact timeline of the project, the scope of work, communication, and even payment terms.
For Your Information
There are some sections that must be in a subcontractor agreement, and the subcontractor needs to pay attention to them.
- Scope of Work - A subcontractor agreement should always specify the scope of work. The scope of work is what a subcontractor is hired to perform. So a well-defined scope of work is crucial.
- Supply Chain - The supply chain or owner specified items aren’t always within the subcontractor’s control and in those cases shouldn’t be the subcontractor’s fault.
- Defense & Indemnification - Many General Contractors add defense and indemnification clauses to their subcontract agreements. However, sometimes these clauses can add undue burden to the subcontractor.
- Insurance, Bonds, & Liens - All subcontractors should know exactly what their contract specifies for insurance and bonds. Sometimes a GC will specify whether or not a subcontractor can take out a lien in the subcontractor agreement.
- Warranty - A subcontract agreement might specify the warranty on work; however, this is dependent upon project.
- Arbitration - Arbitration clauses in a subcontractor agreement are more common. However, they force subcontractors to pursue any claims through binding arbitration rather than a court.
- Conditional Payment - A growing number of subcontractor agreements have conditional payment clauses. “Pay if Paid” and “Pay when Paid” clauses are conditional payment types. The problem with this is that it delays subcontractor payment and sometimes results in non-payment.
These are the elements that can positively or negatively impact the agreement.