4. Subcontractor Agreements
Okay, okay, so subcontractor agreements technically fall into the category of contracts. But they're important enough to give their own section. About a quarter of our customers use subcontractors, but fewer than half of those (46 percent) have formal subcontractor agreements in writing. According to Covington, this is a problem. His one-word description of written subcontractor agreements? "Essential."
As he put it, "without a written agreement, the third party [i.e., the subcontractor] has no specific legal requirement to protect [your] customer's interests." So if one of your subcontractors makes a real boneheaded move on a project and causes your client significant losses, you may not be able to recover damages from the subcontractor. When the client sues, you'll be the one on the hook to compensate them for their losses.
KNOW A GUY? IT'S NOT ENOUGH TO HIRE YOUR FRIEND TO HELP YOU ON A PROJECT. ALL SUBCONTRACTORS NEED A FORMAL EMPLOYMENT AGREEMENT.
So what should a subcontractor agreement include? The specifics depend on the project, but the basics are…
- Definition of the project or work.
- Payment rate, terms, and methods.
- Details about work for hire (74 percent of those using contracts are already including this clause).
- Liability designations.
- Conflict resolution method (e.g., arbitration).
As is true with all contracts, it may make financial sense to start with an online template — but it's still wise to have a legal professional review your subcontractor agreement to make sure it will hold water in court.
To-do item: Put all subcontractor agreements in writing.
Risks managed: Potential lawsuit expenses minimized
Next: 5. Customer Acceptance / Signoff Procedures