Subcontractor Agreement Template

Subcontractor Agreement Definition

A subcontractor agreement is a written contract between a general contractor and a subcontractor. It puts the work, the pay, and the schedule into one document, so both sides know what to expect from the job. Three parties are usually part of the picture:

• The client hires the general contractor for the whole project.
• The general contractor manages the project and hires a subcontractor for one part of it.
• The subcontractor is the specialist who completes that part of the work.

When You May Need a Subcontractor Agreement

A subcontractor is a specialist who has particular expertise in the field of interest. They are hired by contractors who need some help in performing their duties. The most common services that require hiring subcontractors are:

• Construction
• Marketing
• Catering
• IT maintenance
• Design
• Gardening

Let’s take an example. As the contractor, you may agree with the client that you’ll complete the construction project within two years. You have a team of designers and construction workers, but you don’t have the specialists to perform the wiring or plumbing works. That’s where you need to find electricians and plumbers to subcontract the work.

Examples of Subcontractor Work

Subcontractors are hired for trades and services that a general contractor does not cover with its own crew. A few everyday examples show how the arrangement looks on a real job:

• An electrician wires a new office while the general contractor builds the walls and floors.
• A plumber installs the pipes and fixtures during a home remodel.
• A web developer builds the online store for a marketing agency that won a larger client project.
• A catering company serves the guests at an event that an event planner is running.

Subcontractor vs. Employee

Both can do work for the same business, but the way they are hired, paid, and managed is different. Knowing the difference helps you pick the right agreement for the job. There is a big difference between hiring an employee and a subcontractor, such as the following:

1. An employee is usually hired for permanent positions in organizations or entities and paid a salary. A subcontractor is hired for a specific period to complete specific services and is usually paid a fixed fee after completing these services.
2. An employee is hired directly by the employer, while a subcontractor is a third party hired by the contractor who works for the employer or client.
3. According to the state and local laws, employees are entitled to various benefits, for example, health insurance coverage, retirement plans, and paid time off. Subcontractors are not entitled to any kind of benefits.
4. Employers withhold taxes from employees’ salaries and pay to the Internal Revenue Service (IRS). That’s why an employee should file the Employee’s Withholding Certificate (Form W-4) before starting employment. A subcontractor is self-employed and pays taxes independently by filing Form W-9 to the IRS. Employers or contractors do not pay taxes for subcontractors.

Subcontractor vs. Independent Contractor

As we said earlier, people often use these terms and related legal documents interchangeably. They do have a lot in common since these workers are self-employed and pay their taxes independently. However, you should consider the following differences between independent contractors and subcontractors:

1. An independent contractor is employed and paid directly by an employer or customer. A subcontractor, in their turn, is employed by the contractor.
2. An independent contractor agreement is related to implementing a project, for example, constructing an office building. A subcontractor agreement is more related to a specific job and services within this project, for example, setting the lights for this office building.
3. Independent contractors have the resources to handle more work and can be skilled in different spheres. Subcontractors usually specialize in a narrow niche and are hired to perform specific types of work.

What Are the Parts of a Subcontractor Agreement?

A subcontractor agreement form is a binding written agreement that helps establish effective working relationships between an independent contractor and subcontractor. These legal documents formalize the expectations of both parties and ensure that the project will be completed as specified. Each subcontract agreement should contain the following information.

• Parties Involved. Not only the contractor and subcontractor must be identified in the contract. You also need to specify the employer or client who has concluded the general contractor’s agreement.
• Dates. The effective date of the contract must be indicated. You also need to state when the work will commence and end.
• Prime Agreement. You have to specify the details of the original agreement between the general contractor and the client, including its name and date.
• Description of the Services. The scope of the project must be clearly outlined. You need to describe the services the subcontractor will provide and, if applicable, which are excluded from the scope of work.
• Subcontractor Responsibilities. The responsibilities of the subcontractor should be described in the document. The subcontractor can be responsible for bringing their own tools and equipment, labor (including agents and employees), materials, products, and goods.
• Term. The contract should specify the duration of the working relationship. You can state that the contract will be on a monthly basis and may be terminated by either party with written notice in advance. The agreement can end on a specific date or automatically when the services are completed.
• Actual Cost. The subcontractor agreement must contain the amount paid to the subcontractor for their services. Subcontractors usually receive payments per hour. However, it can also be a fixed or completion fee paid at the end of the contract. The contractors may also decide to pay for time and materials.
• Retainer. It’s necessary to indicate whether the subcontractor will receive a retainer payment. A retainer is the amount of money paid before the commencement of services to ensure that the subcontractor will be available to provide services within the specified time frame.
• Payment Terms. The agreement must define how the subcontractor will receive payments. The independent contractor can pay the subcontractor daily, weekly, or monthly. The payment can be provided in full upon completion of the services or when invoiced to the subcontractor.
• Confidentiality Clause. The agreement has to clearly state that the subcontractor is not allowed to share confidential or proprietary information with third parties. If necessary, it’s possible to prepare a separate non-disclosure agreement and attach it to the contract.
• Indemnity Clause. Another essential detail to specify in the agreement is that the subcontractor will indemnify and hold the contractor harmless for any loss, claim, demand, or liability resulting from the services unless they are caused by the fault or negligence of the contractor.

How to Hire a Subcontractor

As the general contractor, you may have to delegate some of your tasks and responsibilities due to a lack of workforce or skills. That’s when you need to hire a subcontractor to do the job for you. A subcontract agreement formalizes the working relationships between the parties and ensures that they get legal protection. In order to hire a subcontractor that ideally fits your needs, you are encouraged to follow the next steps.

1. Outline the necessary services. Define and clearly outline the work you need done. It will help you understand what kind of services the subcontractor must perform and what expertise they must have. For example, a company hires a contractor to bake a cake for a corporate party. The cake has a design that calls for special equipment the contractor does not have, so the contractor brings in a cake designer who does. The services are later outlined in the subcontractor agreement.
2. Find the subcontractor. When you know what type of work you need done within the project, start looking for subcontractors with the right expertise. You can ask colleagues for recommendations or search online, for example, at industry websites or job boards. If you already have a subcontractor in mind, you can contact them directly to see if they would like to work with you.
3. Arrange a bidding process. As a rule, you will have to provide a bidding process if you have several candidates interested in the project. This is when the contractor sends the required scope of services to the potential subcontractors, and the subcontractors submit their proposals with the price for such services. The best combination of cost and quality usually wins. It’s recommended to start the process as soon as possible since it can take months to find the appropriate subcontractor. Note that bidding is required for the public sector, while private entities can choose to address a pre-approved subcontractor.
4. Create and sign the agreement. When you find a suitable candidate, you can start creating the subcontractor contract. The scope of work and compensation are likely to be arranged before this step. But you will still have to negotiate other terms, such as payment terms, subcontractor’s responsibilities, insurance terms, and liquidated damages. The parties can sign the agreement if all terms and provisions are set. Note that the contractor must require the subcontractor to file Form W-9 to collect their contact details and tax number.

Download your fillable Subcontractor Agreement template in PDF.

PDF

Filling Out the Subcontractor Agreement Template

Now that you know how a subcontractor agreement works and how it differs from other work arrangements, you can prepare your own document. Work through the steps below in order, using the free template above. Each step matches one part of the agreement.

1. Identify the date and parties. First, you need to indicate the effective date and identify the parties. The effective date is when the agreement is signed and comes into effect. After indicating the date, you are expected to provide the names of the contractor and subcontractor.
2. Specify the original agreement. A subcontractor is a third party in the working relationship, so it’s crucial to specify the details of the prime agreement between the contractor and the client. You will have to provide the agreement’s name and the date and indicate the name of the prime employer. Note that the subcontractor agreement is subject to and subordinate to the prime agreement.
3. Describe the services. Describe the subcontractor’s work and be as specific as possible. You can also describe what services are excluded from the subcontractor’s scope of work. It will make the agreement more comprehensive and accurate.
4. Identify the start and end dates. It’s required to specify when the subcontractor begins and ends their work. A subcontractor contract needs to outline the period during which the contractor expects all work to be completed.
5. Indicate the responsibilities. Indicate the subcontractor’s responsibilities during the project. These can include providing the tools, equipment, materials, products, and goods, as well as their own agents and employees.
6. Specify the term. Decide how long your subcontractor agreement will run. You can choose your agreement to be monthly. In this case, it will be possible to terminate the contract with an advance written notice to the other party. Also, you can state that the agreement will end on a specific date or after the completion of services.
7. Define the compensation. This section needs to define how much you will pay the subcontractor for their services. You can choose between an hourly rate or a fixed fee. It’s also possible to pay for time and materials or provide a fee after successful completion of the work. If applicable, you can also specify a retainer payment paid to the subcontractor before the services begin.
8. Add payment terms. After you’ve specified the compensation, you must provide a payment schedule. The compensation can be paid daily, weekly, or bi-weekly. You can also select the option to make incremental payments when invoiced by the subcontractor. In this case, you need to specify the period during which the money must be paid after receiving the invoice. It’s possible to choose the payment in full upon completing the services. There is also the option to withhold a specific percentage or price from the final payment upon completion of the services and all improvements and corrections required by the contractor (if any).
9. Indicate the liquidated damages. In this section of the subcontractor agreement, you need to indicate whether the agreement will contain the liquidated damages clause. If yes, it’s necessary to specify the subcontractor’s amount per day for each day of delay. Such an amount may be withheld and offset from any payment due to the subcontractor.
10. Identify the insurance clause. The subcontractor agreement should specify whether the subcontractor will have to provide the contractor with appropriate certificates of insurance coverage or not. If yes, specific insurance requirements must be identified, such as general liability insurance, excess liability insurance, vehicle liability insurance, or worker’s compensation.
11. Add delegation of duties. Subcontractors can delegate a portion of their duties and hire other subcontractors. That’s why the subcontract agreement should contain the specification of whether the subcontractor will be allowed to delegate a part of their duties under this agreement with or without the contractor’s approval.
12. Provide additional terms. If you need to include additional details in your agreement regarding payment method, tax deductions, intellectual property, or dispute resolution, you can do it in this section. Note that this step is optional.
13. Specify the governing law. It’s necessary to specify the state laws that will govern the agreement’s provisions.
14. Indicate the contact details. The contact information of each party, such as mailing address and phone number, needs to be included in the document. These details are crucial for sending notices or providing other communication between the parties.
15. Sign the agreement. Review the finished document, then sign it. Both the contractor and subcontractor must sign the subcontract agreement and indicate the dates of signatures. Keep a signed copy for each party.

Common Mistakes to Avoid

A few small slips cause most of the confusion between a contractor and a subcontractor. Read through this short list before you sign the contract, and fix anything that matches. A clear, complete document saves both sides time and keeps the job running smoothly.

• Describing the work too broadly. Spell out what the subcontractor will and will not do, so nothing is left to guesswork.
• Leaving out dates. Write down the start date, the end date, and the date of each payment.
• Mixing up names. Check that the names match the prime agreement and each party’s ID.
• Losing track of changes. Write any change down and share the updated copy with both sides.

Frequently Asked Questions

A subcontractor is a person or business hired by a general contractor to complete one part of a larger project, such as wiring, plumbing, design, or catering. The general contractor stays in charge of the whole job, while the subcontractor handles only the piece it was hired to do.

Who hires and pays a subcontractor?

The general contractor does. The client hires the general contractor for the whole project, and the general contractor brings in a subcontractor for one specific part of the work, such as electrical or plumbing.

What is the difference between a subcontractor and an independent contractor?

An independent contractor works directly for the client. A subcontractor works for the general contractor and usually handles one narrow part of the project. The comparison section above lists the differences in more detail.

What does a subcontractor agreement usually include?

Most agreements name the parties, the dates, the services, the pay, and the payment schedule. Many also cover insurance, confidentiality, and how either side ends the arrangement. The components list above walks through each part.

What is a prime agreement?

The prime agreement is the main contract between the client and the general contractor. The subcontractor agreement refers to it by name and date, so the subcontractor knows how the work fits into the larger project.

How do I fill out the free template?

Download the free PDF from this page, then customize it with the online PDF editor or print it and write in the details by hand. Save the filled copy and email it to the other party. Follow the fifteen steps above in order, and keep a signed copy for each party.

General information, not legal or tax advice.

Jennifer M. Settles

Author & Attorney

With over 25 years of experience as a business and transactional attorney, Jennifer has mastered the craft of closing highly successful deals for her clients. Through her wide-ranging expertise in commercial contracts, real estate transactions, M&A and corporate law, Jennifer secures results that are second-to-none.