4 Tips for Drafting a Fair and Balanced Subcontractor Agreement

Having a well-drafted subcontractor agreement is crucial for identifying the responsibilities, rights, and expectations of the contractor and a subcontractor when working together to complete a project. Here are four essential tips to consider when drafting your subcontractor agreement:

Tip #1: Payment Rights

The subcontractor agreement should clearly outline the payment schedule for the subcontractor. The subcontractor agreement should identify the amount, timing, and conditions under which payments will be made, including any payments dependent upon achieving certain milestones, submission of specific documents, or receipt of payment by the general contractor. Additionally, lien releases should be contemplated by the subcontractor agreement with comprehensive language included that addresses the subcontractor’s obligations upon receiving payment. Having clear and thorough payment terms tailored toward the specific needs of the project can help manage expectations and prevent future disputes.

Tip #2:  Approval Rights

Incorporating comprehensive approval rights into your subcontractor agreement is crucial for maintaining balance and adaptability. Acknowledge the dynamic nature of the industry when drafting subcontractor agreements and ensure there are mechanisms in place to approve changes in project scope, personnel, timelines, and costs. Contractors should also review their contracts with owners or developers to ensure that the subcontractor agreement’s approval language complies with their obligations under the prime contract. Including well-drafted approval language in a subcontractor agreement is essential for keeping projects on track and ensuring consistent quality control.

Tip #3: Access to Information

Promoting access to information in the subcontractor agreement can be mutually beneficial for both the contractor and the subcontractor. Contractors should consider including language in the subcontractor agreement that grants the contractor comprehensive rights to obtain information from subcontractors, including information related to subcontractor progress, resources, personnel, and any other relevant information that may affect timelines or budgets. Conversely, subcontractors should seek access to the prime contract, project budget, project plans and material specifications to ensure work is performed in accordance with overall project standards. Facilitating the reciprocal exchange of project information between the contractor and subcontractor not only improves efficiency but also facilitates communication and cooperation between the parties. Thus, a fair and balanced subcontractor agreement should clearly identify the parties right to information and describe the processes and procedures required for obtaining the information.

Tip #4: Remedies For Non-Compliance

When drafting a balanced subcontractor agreement, it’s essential to identify what rights and remedies are available to each party. Contractors should consider issues such as payment withholdings, setoffs, and liquidated damages. Subcontractors should consider issues regarding liability limitations and procedures for managing insurance claims. Additionally, the subcontractor agreement should outline the process for contract termination and consider issues that may otherwise result from partial payments or performance. By ensuring the subcontractor agreement comprehensively covers the rights and remedies of the parties in the event of a breach, the subcontractor agreement can offer protections and solutions to both parties that may extend beyond the standard legal rights otherwise afforded to the parties, which are not always a good fit.

Conclusion

A thoughtful and well-drafted subcontractor agreement is vital in defining the roles, responsibilities, and expectations of both contractors and subcontractors. By including clear payment terms, comprehensive approval rights, sufficient access to information, and thorough rights and remedies for non-compliance, your subcontractor agreement can set the foundation for a successful and smooth relationship on this project and future projects.