Creating a Subcontractor Agreement

Note: Want to skip the guide and go straight to the free templates? No problem - scroll to the bottom.
Also note: This is not legal advice.

Introduction

Structuring a subcontractor agreement is essential for ensuring that employers and subcontractors have a coherent working relationship. Such an agreement protects both parties from possible legal disputes, by making sure all rights and responsibilities are clear and expectations are laid out in detail. Without such an agreement, employers or subcontractors could face numerous risks - not receiving payment for their work being one of them - as well as the potential of being sued.

At Genie AI, the world’s largest open-source legal template library, we understand how important it is to draft up a successful subcontractor agreement that suits both parties’ needs. Our team has analysed millions of data points to create our library of templates, enabling anyone to craft accurate documents without the need for costly lawyers. An effective agreement should specify what work needs to be completed and its timeline; payment terms; any necessary qualifications or certifications; penalties if deadlines aren’t met; dispute resolution measures; indemnification clauses protecting employers from liability arising from the actions of the contractor; and consequences should either party fail to honour the arrangement.

We have compiled this guide as a comprehensive resource on creating a successful subcontractor agreement - so read on below for step-by-step instruction on drafting yours today without needing a Genie AI account!

Definitions (feel free to skip)

Scope of Agreement: The range of services, tasks, and responsibilities that will be included in the agreement.
Roles and Responsibilities: The duties and tasks assigned to each party involved in the agreement.
Payment Terms: The terms of payment, including the total amount to be paid, the payment schedule, and the payment methods.
Duration of Agreement: The length of time that the agreement is valid, including the start and end dates.
Conditions of Agreement: The restrictions, limitations, or exclusions that apply to the agreement.
Drafting the Agreement: Writing out the agreement, including all of the necessary information and clauses.
Legal Compliance: Ensuring that the agreement meets all applicable legal requirements.
Termination of Agreement: The process of ending the agreement, including any necessary procedures.
Liabilities of Parties: The potential risks and obligations of the parties involved in the agreement.
Indemnification Procedures: The conditions under which one party can be held liable for any damages or losses.

Contents

• Establishing the scope of the agreement
• Analyzing relevant data
• Clarifying the expectations of the parties involved
• Identifying the roles and responsibilities of the parties involved
• Defining roles and responsibilities
• Assigning tasks to the appropriate parties
• Outlining payment details
• Defining payment terms
• Setting up payment methods
• Setting out the terms of the agreement
• Determining the duration of the agreement
• Establishing the conditions of the agreement
• Confirming the terms of the agreement in writing
• Drafting the agreement
• Obtaining approval from all parties
• Ensuring the agreement is legally binding
• Reviewing the agreement for compliance with applicable laws
• Obtaining legal advice if necessary
• Creating an exit strategy
• Establishing the procedures for termination of the agreement
• Defining the conditions under which the agreement can be terminated
• Timely review of the agreement
• Setting periodic reviews of the agreement
• Updating the agreement as needed
• Termination of the agreement
• Notifying all parties of the termination
• Finalizing the agreement
• Liability and indemnification clauses
• Determining the liabilities of the parties involved
• Setting limits on the liabilities of the parties
• Establishing indemnification procedures

Get started

Establishing the scope of the agreement

• Define the work to be completed: Identify the exact services that need to be provided by the subcontractor, including any timeline and deliverables.
• Set expectations: Make sure the subcontractor understands their responsibilities and the expectations of the outcome.
• Discuss payment: Detail the payment terms, including how much will be paid, when payments will be made, and any other requirements.
• Establish confidentiality: Discuss the confidentiality of the subcontractor’s work and information, as well as any non-disclosure agreements that need to be in place.
• Check any relevant laws: Make sure that all relevant laws, regulations, and rules are adhered to.
• You will know the scope of the agreement has been established when all of the above points have been discussed and agreed upon by both parties.

Analyzing relevant data

• Gather necessary documents, such as IRS forms and past contracts
• Identify any applicable local, state, and federal laws
• Research industry standards and best practices
• Consider the scope of the agreement and any relevant details that need to be included
• Create a checklist to ensure all relevant data is accounted for
• Once all relevant data is analyzed and considered, the next step is to clarify the expectations of the parties involved.

Clarifying the expectations of the parties involved

• Outline the project scope, timeline, and expectations of both parties
• Determine who will be responsible for providing resources needed
• Identify the payment terms and schedule
• Clearly define the acceptable quality of work required
• Agree on a dispute resolution process
• Discuss any additional terms that need to be included
• When both parties have agreed on all the terms and conditions, the agreement should be signed and dated by both parties.

Identifying the roles and responsibilities of the parties involved

• Identify the roles and responsibilities of each party involved in the subcontractor agreement.
• Take into consideration the scope of work, deliverables, timeline, and payment terms for each party.
• Create a list of each party’s responsibilities and expectations.
• Confirm the list of roles and responsibilities with each party.
• Once both parties have agreed on the roles and responsibilities, this step will be complete.

Defining roles and responsibilities

• Outline the duties of each party in the agreement
• Clearly define each party’s roles and responsibilities
• Specify which party is responsible for any additional costs associated with the project
• Establish what will happen if either party fails to fulfill their obligations
• Make sure that the agreement is fair and balanced for both parties
• Ensure that all roles and responsibilities are clearly understood by both parties
• Once all roles and responsibilities have been defined and agreed upon, the step can be marked complete and the parties can move on to assigning tasks to the appropriate parties.

Assigning tasks to the appropriate parties

• List out the tasks that need to be completed by each party in the subcontractor agreement.
• Specify any deadlines associated with the completion of each task.
• Make sure that the tasks assigned to each party are appropriate, taking into account their skill set, experience and availability.
• Once all tasks have been assigned to the appropriate parties, have each party sign off on the agreement.

Once you have listed out the tasks and specified deadlines for each, and both parties have signed off on the agreement, you can move on to the next step of outlining payment details.

Outlining payment details

• Calculate the total cost of the project, including materials, labor, and any other associated costs
• Decide on a payment plan, such as a lump sum, installment payments, or a combination of the two
• Decide if the payment plan will include a deposit or progress payments
• Define the payment schedule and payment due date in the agreement
• Specify the consequences of late payments
• Include the payment terms in the subcontractor agreement
• When you have outlined all the payment details in the agreement, check it off your list and move on to the next step.

Defining payment terms

• Determine the payment process for the subcontractor. This can include a lump sum payment or payments on an hourly basis.
• Consider whether you need to include any additional clauses such as a late payment fee.
• Set a timeline for payments, such as on a weekly or monthly basis.
• Make sure to include any incentives for early payment, such as discounts.
• Include any other payment terms that are necessary for the agreement.

Once all the payment terms have been outlined, you can check this step off your list and move on to setting up payment methods.

Setting up payment methods

• Decide on the method of payment: cash, check, or direct deposit
• Specify when payment will be made (e.g. at the end of the month, etc.)
• Indicate the currency in which payment will be made
• Outline any penalties for late payments
• Provide information on how to issue payment (e.g. mailing address, bank account number, etc.)
• Make sure both parties agree to the payment methods

Once all information regarding payment methods is specified and agreed upon, you can move on to the next step of setting out the terms of the agreement.

Setting out the terms of the agreement

• Decide on which terms you’d like to include in the subcontractor agreement
• Draft the agreement, making sure to include the subcontractor’s name, the project’s scope, expectations, timeline, and payment terms
• Consult a lawyer to review the agreement and make sure it is legally sound and enforceable
• Have the subcontractor sign the agreement, and make sure to keep a copy of the signed document for your records
• Upon completion of this step, you should have a legally binding agreement in place with the subcontractor that both parties can refer to if any issues arise.

Determining the duration of the agreement

• Consider how long the agreement needs to remain in place.
• Decide on a start and end date for the agreement.
• Include any conditions for early termination of the agreement.
• Specify any renewal conditions or options for extending the agreement.
• Make sure to include these details in the agreement.

Once you have determined the duration of the agreement and included all related details in the agreement, you can check this step off your list and move on to the next step of establishing the conditions of the agreement.

Establishing the conditions of the agreement

• Establish the scope of the services to be provided by the subcontractor
• Describe the roles and responsibilities of the subcontractor
• Determine the payment arrangement between the contractor and subcontractor
• Establish who will provide the necessary supplies and equipment
• Set a timeline for the completion of the services
• Establish the reporting requirements for the subcontractor
• Specify the procedures and methods that must be followed
• Address any confidentiality and/or non-disclosure requirements
• Outline any warranty and/or liability provisions

You’ll know you completed this step when all of the conditions of the agreement have been discussed and agreed upon between the parties.

Confirming the terms of the agreement in writing

• Reach out to the subcontractor and verify the terms of the agreement that were established in the previous step
• Make sure that the subcontractor understands the scope of the project, the timeline for the completion of the project, the compensation for the job, and any other terms that were agreed upon
• Once this step is completed, the subcontractor and the employer will both have a written understanding of the terms of the agreement and can move on to the next step of drafting the agreement.

Drafting the agreement

• Prepare an agreement template with the details of the subcontractor and the contractor (i.e. name, address, contact details)
• Include the scope of work, timeline, payment terms, and any other relevant information
• Add a clause that outlines any potential dispute resolution
• Have each party review the contract and sign
• Check that all parties have given their approval before moving on to the next step

Obtaining approval from all parties

• Contact all parties involved in the agreement and request they review and sign the agreement
• Ensure all parties involved understand the terms and conditions of the agreement before seeking approval
• Obtain signatures from all parties involved in the agreement
• Once all parties have signed the agreement, you have obtained approval and can move on to the next step

Ensuring the agreement is legally binding

• Have a lawyer review and approve the agreement to ensure it is legally binding
• Get the agreement notarized to make it a valid, binding contract
• Send the agreement to all parties involved to sign and have them return it with a notarized signature
• Once all parties have returned the agreement with a notarized signature, you can be sure it is legally binding and you can check this step off your list.

Reviewing the agreement for compliance with applicable laws

• Read the local, state, and federal laws that apply to the agreement
• Check that the agreement complies with the laws and regulations
• Make any necessary changes to the agreement to ensure compliance
• When the agreement is up to date with the applicable laws and regulations, you can move on to the next step.

Obtaining legal advice if necessary

• Research local attorneys who specialize in contract law to find the best fit for your business
• Ask for referrals from other business owners who have used the attorney in the past
• Make sure the attorney has experience in creating subcontractor agreements
• Schedule a consultation and discuss the specific terms and conditions of the agreement
• Ask the attorney to review the agreement and provide feedback on any changes or modifications that should be made
• Make any changes or modifications suggested by the attorney
• When the attorney has reviewed the agreement and you have made any necessary modifications, you can check this off your list and move on to creating an exit strategy.

Creating an exit strategy

• Outline the details of the subcontractor agreement termination, including the conditions and procedures
• Consider including a clause that states what happens to the intellectual property and materials once the agreement is terminated
• Determine the duration of the agreement and any applicable renewal or extension options
• Include a clause that outlines how disputes will be resolved
• Establish the procedures for how to terminate the agreement, including the notification process, payment terms, and any other related details
• When you have all the necessary details for the agreement termination outlined and agreed upon, you can move on to the next step.

Establishing the procedures for termination of the agreement

• Determine the length of the agreement and any conditions that must be met before terminating the agreement
• Agree on a written notice of intent to terminate the agreement and be sure to include what will happen if the notice is not given
• Include clear language that explains the consequences for terminating the agreement early, such as any financial penalties or obligations to complete work
• If the agreement is terminated, specify how any remaining payments will be handled
• Finalize the agreement with signatures from both parties

Once all of the above steps have been completed, you can move on to the next step: Defining the conditions under which the agreement can be terminated.

Defining the conditions under which the agreement can be terminated

• Define the conditions under which the agreement can be terminated, such as non-compliance with the subcontractor agreement, failure to meet the quality standards, or failure to comply with the schedule.
• Make sure that the conditions of termination are included in the agreement and that all parties agree to them.
• When the agreement is signed by both parties, you can check this step off your list and move on to the next step.

Timely review of the agreement

• Research applicable laws and regulations that may be relevant to the agreement
• Consult with a legal advisor to ensure that the agreement is compliant with all applicable laws
• Establish a timeline for reviewing the agreement, such as annually or in the event of any significant changes
• Create a plan for how the agreement will be reviewed, including who will be involved, what will be reviewed and when
• Include a clause in the agreement requiring the parties to review the agreement at the established timeline
• Once the agreement has been reviewed and updated as needed, both parties should sign the document to make it legally binding

How you’ll know when you can check this off your list and move on to the next step:
Once the agreement has been reviewed, updated, signed and dated by both parties, you can proceed to the next step of setting periodic reviews of the agreement.

Setting periodic reviews of the agreement

• Set a date for the initial review of the agreement
• Determine the frequency of future reviews of the agreement
• Agree on a review process for any changes that may be necessary
• Document the review process and the date of the recent review in the agreement
• Check off this step once you have agreed on the review process and documented it in the agreement.

Updating the agreement as needed

• Identify any changes that need to be made to the agreement
• Notify the subcontractor of the changes that need to be made
• Receive an updated agreement from the subcontractor
• Review the updated agreement to ensure it meets your expectations
• Sign the updated agreement and have both parties keep a copy

When you have identified any changes, notified the subcontractor and received an updated agreement, you can check this off your list and move on to the next step of Termination of the agreement.

Termination of the agreement

• Inform the subcontractor in writing of the termination of the agreement.
• Explain the reason for the termination.
• Include the termination date in the notice.
• Review any existing contracts for additional requirements related to termination.
• Ensure that all payments due to the subcontractor have been fulfilled.
• Confirm that the subcontractor has returned all documents, tools, and materials relating to the agreement.
• You will know you have completed this step when you have sent written notice to the subcontractor, and they have acknowledged they have received the notice.

Notifying all parties of the termination

• Contact all involved subcontractors to inform them of the termination of the agreement.
• Ensure that all subcontractors are notified of the termination of the agreement in writing.
• Check that all subcontractors have received the notice of termination.
• Once all subcontractors have been notified and receive the termination notice, check this off your list and move on to finalizing the agreement.

Finalizing the agreement

• Ask all parties to review the agreement
• Ensure all parties agree to the terms of the agreement
• Sign and date the agreement
• Make copies of the agreement for all parties
• Keep the signed agreement in a secure location
• When all parties have signed, dated, and returned the agreement, you have completed this step and can move on to the next step.

Liability and indemnification clauses

• Draft a clause that outlines the liabilities of each party in the subcontractor agreement
• Include any indemnification clauses that may apply
• Clearly define the scope of work that the subcontractor is responsible for
• Make sure the subcontractor is aware of any liabilities they may incur in the agreement
• Confirm that all parties have agreed to the liability and indemnification clauses in the agreement
• Identify what actions should be taken and by whom in the event of a dispute
• When all parties are in agreement of the liability and indemnification clauses, the step is complete and you can move on to the next step.

Determining the liabilities of the parties involved

• Consult with legal counsel to determine the liabilities, rights and obligations of both the subcontractor and the contractor
• Identify any potential risks that need to be addressed in the agreement
• Consider the scope of the project and make sure the subcontractor agrees to take responsibility for any damages they cause
• Include clauses that assign responsibility to the subcontractor for any potential damages

When you can check this off your list:

• When all liabilities, rights and obligations of both parties are identified and included in the agreement
• When all potential risks are addressed in the agreement
• When the scope of the project is clearly defined and the subcontractor agrees to take responsibility for any damages they cause
• When clauses that assign responsibility to the subcontractor for any potential damages are included in the agreement.

Setting limits on the liabilities of the parties

• Identify the liabilities of each party as outlined in the previous step
• Determine what type of limits can be imposed on the liabilities of each party
• Set limits on the liabilities of each party that are fair and reasonable
• Outline any conditions for the limits, such as specific circumstances under which the limits may be exceeded
• Write the limits into the subcontractor agreement
• Have both parties sign the agreement to legally bind them to the limits of the liabilities
• Review the agreement and make any necessary changes before it is finalized

Once the limits on the liabilities of the parties have been set and written into the subcontractor agreement, it is ready to be signed and finalized.

Establishing indemnification procedures

• Establish what type of indemnification the subcontractor will provide, including any damages or losses the contractor may incur due to the subcontractor’s actions.
• Consider adding a clause that requires the subcontractor to insure itself against any losses or damages that may befall the contractor in the event of non-performance.
• Specify a limit to which the subcontractor is liable in the event of any losses or damages.
• Ensure that the subcontractor agrees to indemnify the contractor for any legal fees that may arise as a result of the subcontractor’s actions in relation to the agreement.
• Confirm that the subcontractor will hold the contractor harmless in the event of any claims resulting from the subcontractor’s breach of contract.

Once you have established indemnification procedures and they have been agreed upon by both parties, you can check this off your list and move on to the next step.

FAQ:

Q: What is a Subcontractor Agreement?

Asked by Christina on March 15th, 2022.
A: A Subcontractor Agreement is a legally binding document between two parties - the Contractor, who hires a subcontractor to perform a certain job or work; and the Subcontractor, who agrees to complete the job or work according to the Contractor’s instructions. The agreement outlines the rights and obligations of both parties, including payment terms and other conditions. It also covers any applicable insurance or bonding requirements.

Q: What should be included in a Subcontractor Agreement?

Asked by David on April 2nd, 2022.
A: A well-constructed Subcontractor Agreement should include key details such as the scope of work, payment terms, timeline of completion, terms of termination, confidentiality clauses, and any applicable insurance or bonding requirements. It should also include information on dispute resolution mechanisms, indemnification clauses, and governing law provisions.

Q: How is a Subcontractor Agreement different from an Employment Agreement?

Asked by Anna on April 20th, 2022.
A: A Subcontractor Agreement is fundamentally different from an Employment Agreement because it does not create an employer-employee relationship between the Contractor and Subcontractor. Whereas an Employment Agreement outlines conditions of employment in which an employee will work for an employer under certain conditions and for certain pay, a Subcontractor Agreement outlines the terms of a contractual relationship between two parties in which one party (the Contractor) hires another party (the Subcontractor) to complete a specific job or task in exchange for payment or some other form of compensation.

Q: When do I need a Subcontractor Agreement?

Asked by Matthew on May 10th, 2022.
A: You should consider having a Subcontractor Agreement in place whenever you are hiring a subcontractor to perform any kind of work on your behalf. The agreement will protect you in case of any disputes or misunderstandings that might arise between you and your subcontractor during the course of your working relationship. It will also ensure that you are fulfilling your legal obligations when it comes to providing appropriate insurance and other protections for your subcontractors.

Q: Are there any legal considerations I need to be aware of when creating a Subcontractor Agreement?

Asked by Elizabeth on May 29th, 2022.
A: There are several legal considerations that must be taken into account when creating a Subcontractor Agreement, such as jurisdiction-specific laws related to contracts and subcontracting agreements, tax implications for both the contractor and subcontractors involved in the agreement, as well as any applicable labor laws that must be observed. Additionally, it is important to ensure that all parties involved understand their respective rights and responsibilities under the agreement before it is signed.

Q: What type of insurance do I need to include in my Subcontractor Agreement?

Asked by Thomas on June 16th, 2022.
A: The type of insurance you should include in your Subcontractor Agreement depends on the scope of work being performed by your subcontractors and the particular risks associated with that type of work. For example, some types of work may require liability coverage while others may require worker’s compensation coverage or some other form of insurance. Additionally, you may want to consider including additional clauses such as indemnification clauses in order to protect yourself from potential liabilities associated with your subcontractors’ work.

Q: Are there any special considerations for UK vs USA vs EU jurisdictions when creating a Subcontractor Agreement?

Asked by Sarah on July 5th, 2022.
A: When creating a Subcontractor Agreement for UK vs USA vs EU jurisdictions it is important to consider any specific laws that may apply within each jurisdiction as well as any potential differences in language used within contracts from each jurisdiction. Additionally, it is important to ensure that all parties involved understand their respective rights and responsibilities under the agreement before it is signed and that any payments made are compliant with local laws regarding taxation or other financial obligations imposed on employers or employees within each jurisdiction.

Q: What should I do if I need help creating my own Subcontractor Agreement?

Asked by John on July 24th, 2022.
A: If you are unsure how to create your own Subcontractor Agreement or if you need help navigating the legal considerations associated with such agreements then it may be beneficial to consult with an experienced lawyer who specializes in contract law and can provide guidance specific to your particular situation. Additionally, there are online templates available that can provide guidance for creating basic agreements tailored to specific industries or jurisdictions which can also be helpful if you are looking for more general guidance regarding what should be included in your agreement

Example dispute

Possible Lawsuits Referencing Subcontractor Agreement

• The plaintiff may be able to raise a lawsuit if the subcontractor agreement was breached in some way. This can include not providing the services outlined in the agreement, not paying the agreed-upon amount, or any other violation of the agreement.
• The plaintiff may also be able to raise a suit if the subcontractor was negligent in their performance of the contracted services, resulting in damages.
• The plaintiff may be able to win the lawsuit if they can prove that the subcontractor agreement was breached or that the subcontractor was negligent in their performance. The plaintiff may also be able to win if they can demonstrate that they have suffered damages as a result.
• The plaintiff may be able to seek damages for any losses that can be attributed to the breach of the subcontractor agreement or the subcontractor’s negligence. These damages might include financial losses, such as lost revenue or other costs associated with the breach, or non-financial losses, such as reputational damage or emotional distress.
• In some cases, the plaintiff may be able to seek additional damages, such as punitive damages or attorney’s fees.
• Depending on the jurisdiction, the plaintiff may also be able to seek equitable remedies, such as an injunction or specific performance.
• Settlement may be reached through negotiation or through court-ordered mediation, and settlement terms may include payment of damages, a revised agreement, or other terms agreed upon by both parties.

Templates available (free to use)

Jct Sub Subcontract Agreement
Master Subcontract Agreement
Subcontract Agreement Form

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