Subcontractor Agreements (and why you need one)
Hiring subcontractors can provide many advantages to the small business owner, but with those advantages comes an additional level of risk.
Why Do I Need A Subcontractor Agreement?
A subcontractor can provide your company with valuable specialized skills needed to complete a project. Subcontracting work can also provide your company with staffing flexibility, cost savings, and increased efficiency and scalability. However, with the potential to add value to your company comes an additional risk. As a general rule, a company is liable for its subcontractor’s work even if the company did not directly perform the services for the client. In order to mitigate this liability, a business must protect itself by having a written contract with the subcontractor to allocate risk of loss to the responsible party.
What Needs To Be In My Agreement?
- Project Length And Scope
Your contract should detail the exact deliverables of your project from both parties, a schedule of fees, and a clear timeline of completion. If these items are outlined in writing and agreed to by both parties, a business can reduce or eliminate its liability related to the non-delivery of products or services, and also the completion time of the subcontractors.
- Warranty and Insurance Clauses
Warranty clauses seek to protect your business against any defects in materials or services for a defined period of time after the work has been completed. Insurance clauses requires the subcontractor to provide sufficient general liability insurance (and the subcontractor should provide written evidence that such an insurance policy exists). These key provisions will allow for the business to legally allocate any losses caused by the “at fault” subcontractor, and seek protection from the subcontractor’s insurance company.
- Industry Specifics
As with any contract, you should consult your legal representative to discuss any specific issues relevant to your particular business, industry, or project
Without a subcontractor agreement, a business can be exposed to unlimited liability related to the performance of its subcontractor. Any mistake made by the subcontractor can be perceived as a mistake by the contractor without a written agreement in place identifying responsibilities of the parties involved. The best way to mitigate this risk is to contact your legal representative to create a written subcontractor agreement that transfers the risk of loss to the “at fault” party.