Subcontractor Agreement Template

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Updated June 20, 2022

A subcontractor agreement is between a contractor that hires a subcontractor to assist in the completion of a project or service. The independent contractor will usually hold a contract for services with a client, most commonly in construction, and will choose to hire a subcontractor to finish a part or all of the services. The agreement should outline all duties, liabilities, and responsibilities of the subcontractor along with any other conditions.

IRS Form W-9 – Required to be completed by subcontractors to prove that the individual or entity is allowed to work by presenting their name and Social Security Number (SSN) or Employer Identification Number (EIN).

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Table of Contents

How to Hire a Subcontractor (5 Steps)

A subcontractor is sought when an individual or company, known as the ‘independent contractor’, cannot perform the duties necessary to complete a project. This is common in construction when specialty tasks are needed to be completed in order for the entire project to be finalized. The agreement is between the independent contractor and subcontractor only.

Step 1 – Scope of Work

The scope of work is a term that is used to describe the exact specifications for a task that is to be completed by a subcontractor. This description will be needed when trying to find a subcontractor for a specific job.

For example, if a roofer is needed the exact type, square feet (SF), materials needed, and due date must be outlined in the scope of work.

Step 2 – Finding the Subcontractor

After the scope of work is specified, it’s now time for the independent contractor to find a qualified subcontractor to fulfill the job. The best way is to ask around or go on websites such as Yelp to find reviews. Once a select number of potential candidates have been found, it’s time to contact and see if they are interested in the work.

Step 3 – *The Bidding Process

*If the independent contractor already has a subcontractor in mind then they can skip this step.

The bidding process is when all potential candidates for the job are given the scope of work and are allowed to submit proposals on how much they will charge if they are given the work. This can take anywhere from days, weeks, or months depending on the scope of work involved (such as materials needed, number (#) of employees, etc.).

Step 4 – Writing the Agreement

When writing the agreement, the independent contractor and subcontractor will be obligated to come to terms over who is responsible for the following items:

  • Payment;
  • Materials;
  • Equipment;
  • Transportation/Travel;
  • Completion Date; and
  • Insurance (usually General Aggregate)

Before, at the time, or after the agreement has been signed the Subcontractor may have the right to view the Master Contract between the Independent Contractor and the Client (the Client is the party that hired the Independent Contractor). This is to confirm that the Independent Contractor will have the funds for payment at the end of the project.

Step 5 – Finalization and Payment

After the agreement has been signed the subcontractor will be able to begin work on the date set forth in the agreement. Depending on the payment schedule outlined, the subcontractor will be paid in full after the work has been completed to the approval of the independent contractor and the client (within industry standards). Afterward, the subcontractor’s work is complete and the agreement is no longer valid unless there are any warranties provided.

Employee vs Subcontractor

There are several differences between an employee and a subcontractor, most common of which are listed below:

Taxes

  • Employees have their taxes (state and federal), Social Security, Medicare, and all other employment-related taxes automatically withheld by the company they are employed with.
  • Subcontractors are solely responsible for filing their taxes. They would need to identify the amount they should withhold on their own and may need file taxes more frequently than a traditional employee (up to four times per year). This can be done by consulting the Internal Revenue Service (IRS) or a tax accountant.

Benefits

  • Employees are often offered benefits by a company (contractor), which may be inclusive of health benefits, assistance lines, life insurance, etc.
  • Subcontractors are not offered any benefits from the contracting company and therefore that will not be listed on the agreement.

Behavior

  • An employee is bound by the company’s policies and procedures for appropriate behavior, services to provide and their training.
  • A Subcontractor is responsible for behaving professionally and ensuring they bring the appropriate skill sets as needed. They are accountable for creating their own professional guidelines and abiding by them.

Additional differences can be found in the wages between an employee and a subcontractor, the schedules (where and when) and hours that are worked or opportunity to own into the business.

Filing Taxes (Form 1099-MISC)

IRS Form 1099-MISC is required to be completed by the contractor if there were payments made to the subcontractor in excess of $600 during the fiscal year. The contractor will be required to provide this form to the subcontractor by January 31 of the following year and file with the IRS by the last day of February.

The subcontractor is responsible for payment of their own State and Federal withholding taxes.

What NOT to Provide a Subcontractor

Due to the risk of the subcontractor being labeled as an employee of the contractor, it is best to avoid providing a subcontractor with the following:

Give Benefits – Providing benefits to a subcontractor should not be done. Each member of a company’s team should be accountable, which is needed for tax purposes and to ensure the company is abiding by the appropriate healthcare laws. Being that a subcontractor cannot be listed as an employee as well, the company must ensure they are listed as a subcontractor and not offer benefits. Benefits that should not be provided may range from healthcare, 401K, paid time off, sick time and so forth.

Provide Tools or Materials – The appropriately qualified subcontractor will not require additional tools and materials to be provided by the company in order to complete the task. They will be able to complete the work required as requested without additions. This would be included and detailed in the subcontractor agreement for full understanding as they would be expected to provide their own materials.

Pay their Taxes – A subcontractor has the responsibility to file and pay their own taxes. The wages that are made from the job are paid as a lump sum and are not required to have taxes be withheld by the contracting firm. The subcontractor will file IRS Form 1099-MISC.

Give Training – A subcontractor will be a fully trained professional with the capability to complete the task or job. The company is responsible for ensuring their employees are trained individuals, however, for work or assignments being sent to a subcontractor, it should require extremely minimal direction. The subcontractor should not require any additional training or be provided full training as their purpose is to provide a specific set of skills.

State Definitions

(Video) What is a Subcontractor Agreement?

How to Write a Subcontractor Agreement

Download: Adobe PDF, MS Word (.docx) or OpenDocument

I. The Parties

(1) Date Of Subcontractor And Contractor Agreement. The mutually agreed-upon effective date of this contract must be documented at the beginning of the first article. This date will be when the two Parties involved wish the conditions and terms of this agreement (presented below) to officially begin obligating the Contractor and Subcontractor signing it.

(2) Identity And Address Of Hiring Contractor. The legal name of the Hiring Contractor entering this agreement requires its presentation in the First Article. In addition to the Contractor’s legal name, his or her formal business or mailing address must also be documented to the space immediately following.

(3) Subcontractor Name And Contact Address. The name and the mailing address or professional business address of the Subcontractor who intends to accept this commission (by signature) must be submitted to the first article. This will be the Party being hired to complete certain job tasks by the Contractor named above in exchange for payment.

II. The Client

(4) Contractor’s Client. The name of the Contractor’s Client, the ultimate source of the work being done, must be established in the Second Article. If this is an Entity such as a corporation then whatever abbreviation and suffix needed to present its legal name must be included.

(5) Client Contact Information. The mailing address of the Client should be displayed in the Second Article as well. This address must be where mail (such as legal notices) sent to the Client can be reliably received.

III. Services Provided

(6) Required Subcontractor Service. Naturally, the Contractor will have a specific function that must be completed by the Subcontractor in order to satisfy this agreement. Locate the Third Article so that a complete account of the tasks, projects, and work that the Subcontractor must perform to the satisfaction of the Contractor can be documented. It is recommended to be as specific as necessary to fully define the Contractor’s expectations. Once this agreement is signed, any undocumented work tasks could not be expected from the Subcontractor unless they are considered a change order.

IV. Subcontractor Responsibilities

Select Every Item That Applies

(7) Subcontractor Labor Requirement. Some projects, due to their nature, will require that more work be performed than one Subcontractor can humanly complete. For instance the Subcontractor may be required to complete a complicated task under a challenging deadline or may even need additional people for physical labor. If the Subcontractor will be held allowed to hire additional Subcontractors, Freelancers, or Companies to complete the work defined in the previous article then select the first checkbox in this section (Article IV). If the Subcontractor will not be allowed to seek additional (professional) help regardless of the circumstances, then leave this checkbox unmarked.

(8) Materials. If the Contractor will expect the Subcontractor to provide the physical supplies, products or materials needed to complete the job listed in Article III, then seek out and select the second checkbox in Article IV.

(9) Equipment. Select the “Equipment” checkbox if the Subcontractor will be expected to supply and maintain the equipment needed to complete the concerned project. This will include maintaining his or her own insurance for such vehicles when off the job site even if the Subcontractor obtained the equipment to solely to complete this job.

(10) Travel. Some Contractors may provide transportation to the Subcontractor the people and materials defined above while others will require that the Subcontractor hold this responsibility. If the Subcontractor must assume the “Travel” responsibilities needed to complete the work in this contract then select the “Travel” checkbox.

(11) Other Subcontractor Responsibility. If there are obligations to this project that the Subcontractor must live up to have not been established by this section and the previous one, then select the checkbox labeled “Other” and provide the remaining responsibilities in the space provided (i.e. the Subcontractor may be required to obtain or maintain a special license or clearance). This should focus on the items and work needed to complete the tasks defined in the previous article. There will be an are where any additional agreements made by these two Parties can be documented later in this paperwork.

V. Location

Select Item 12 Or Select Item 13

(12) Location Of Subcontractor Assignment. The job site where the Contractor needs the Subcontractor to physically show up to complete or deliver the services and products required by this document should be established if known. If so, then select the “Specific Address” checkbox and document where the Subcontractor must deliver his or her services and/or his or her products

(13) Currently Undetermined Work Site. If the worksite is unknown then select the “Determined At A Later Time” checkbox.

VI. Commencement Date

(14) Start Date Of Subcontractor Job. The first calendar date of work for the Subcontractor on the commissioned assignment should be submitted in the Sixth Article.

VII. Completion

Choose Item 15, Item 16, Or Item 17

(15) Termination Date Of Job. If the job the Contractor is hiring the Subcontractor to complete has a specific termination date, it must be shown here in this document. If so, mark the first checkbox and dispense the first calendar date when the Subcontractor’s work on this job must be finished..

(16) Industry Standards Determination. If the Industry the Contractor and Subcontractor work in has a set standard of completion for the Subcontractor’s work then select the second checkbox statement.

(17) Other Conditions For Completion. There may be other factors than the date or the current industry standard that should be used as a measure of the Subcontractor’s project completion. For instance, delivery of freight may be needed or the exact date when the project is complete may be dependent upon circumstances or conditions that cannot be predicted at this time. If so, then select “Other” from Article VII and use the space after this label to document exactly how or when the Contractor and Subcontractor may consider the project(s) at the center of this agreement completed.

VIII. Payment Amount

Choose Item 18, Item 19, Or Item 20

(18) Predetermined Payment Amount. If the payment the Contractor will owe the Subcontractor will be dispensed as a whole amount, then select the checkbox attached to the first statement in Article VIII and supply the dollar amount the Subcontractor will be paid

(19) Hourly Pay. If the Subcontractor will earn an hourly wage then mark the second checkbox statement and dispense the amount of money the Subcontractor will earn for every hour on the commissioned project.

(20) Other Payment Amount. The manner that the Subcontractor’s pay rate is calculated may not be as clear-cut as a flat fee or an hourly wage. For instance, there may be a commission involved. If the previous options cannot be used to establish how the Contractor shall determine how much the Subcontractor has earned as a result of working on this agreement’s project, then mark the checkbox “Other.” Once selected, produce a description of precisely how the Subcontractor’s pay will be determined on the blank space this selection provides.

IX. Payment Method

Select Item 21, Or Item 22, Or Item 23, Or Item 24, Or Item 25

(21) Payment Upon Subcontracted Job Completion. A record of when the Subcontractor will be entitled to payment from the Contractor for satisfying this agreement will need to be included in this discussion. If payment must be received by the Subcontractor as soon as he or she has finished with the work required by this agreement, then select the first checkbox statement in Article IX.

(22) Grace Period For Payment. If a given amount of time between the completion of the job and the time when payment must be received by the Subcontractor will be allowed, then the second checkbox should be marked. In addition to this selection, the number of business days constituting this grace period must be defined within the contents of the selected statement.

(23) Standard Pay Schedule. If the Contractor will submit payment to the Subcontractor periodically then select the third statement. This selection will require that additional distinctions be made.

(24) Pay Schedule Definition. It should be established how often the periodic payments will be made to the Subcontractor. Therefore once the appropriate selection is made, indicate whether these payments will be submitted once a week, once a month, once every quarter or some other time frame by marking the checkbox labeled “Weekly, “Monthly,” “Quarterly,” or “Other.” Notice that if “Other” is selected the displayed space will require that a definition of the time frame consisting of one pay period must be documented.

(25) Other Payment. The Contractor and Subcontractor may intend to agree to a payment schedule that has not been discussed  thus far. In such a case, select “Other” and explain the payment schedule or the events required to pay the Subcontractor for his or her time on this project to the blank space on display in this statement.

X. Subcontractor

Select Item 26 Or Select Item 27

(26) Right To Subcontracting. Some projects may require that the Subcontractor obtain services either for specialized or general help. If the Subcontractor may be expected and is allowed to contract additional Subcontractors for this job then the first checkbox statement must be selected

(27) No Right To Subcontracting. If the Contractor will not allow the Subcontractor to hire additional help then select the second checkbox statement. Keep in mind that if the “Labor” checkbox was selected in Article IV, then selecting this checkbox may require additional clarification when given the opportunity to attach additional provisions to this document.

XI. Assignment

(28) Subcontractor Assignment Rights. Some projects may require that the Subcontractor be able to assign the same rights he or she has on this project to a Party that he or she has hired. If the Subcontractor has this right of assignment then select the first statement in Article X however, if the Subcontractor may not assign, grant, or share the rights he or she has on this project to a Third Party that he or she employs then the second checkbox must be chosen.

XII. Insurance

(29) Insurance Requirement. If the Subcontractor must obtain insurance to cover any potential liability during the project, then the “Shall” checkbox must be selected. If not, then select the “Shall Not” checkbox. Be advised that if the Subcontractor must maintain an insurance policy, this policy must be discussed using the next four items.

Select Items 30, 31, 32, And 33 If Needed

(30) General Liability Insurance. If the Subcontractor will need to carry a minimum amount in liability insurance then select the “General Liability Insurance” checkbox. This requires that a presentation of the dollar amount the Subcontractor must obtain in minimum coverage to insure against the costs of bodily injury and damage to the (job site) property be made Statement (A), that the minimum coverage amount the Subcontractor must maintain against Personal Liability Injury be supplied to Statement (B), that the minimum required against liability costs for the Products-Completed Operation be furnished to Statement (C), and that the minimum amount coverage the Subcontractor must obtain to insure his or her own services be documented in Statement (D).

(31) Vehicle Liability Insurance. If the Subcontractor must obtain “Vehicle Liability Insurance” for vehicles required for this project that he or she owns or does not own but must use, then select the “Vehicle Liability Insurance” checkbox and dispense the minimum amount that he or she must obtain as protection in single limits liability if he or she causes or suffers from bodily injury or property damage while operating a job site required vehicle.

(32) Excess Liability Insurance. Select the third checkbox in this area if the Subcontractor must maintain excess liability coverage to protect against damages that are not considered under the category of general liability or protected by vehicle insurance. This is particularly useful should payment be required for expensive repairs or health care that result from an At-Fault party but whose costs exceed what the insurance policy maintained by the At-Fault Party would be responsible for.

(33) Additional Insurance Requirement. If there will be other insurance requirements placed on these Parties that have not been discussed (i.e. such requirements may be dependent upon the job sites locality and the original contract held between the Contractor and his or her Client) but must be satisfied by the Subcontractor then, place a mark in the “Additional Insurance Requirement” checkbox. All such additional requirements should be reported in Item 43 which discusses Article XXXIII.

XIII. Resolution Of Disputes

Choose Item 34, Item 35, Or Item 36

(34) Binding Arbitration. Even with the best of contracts one or more Parties signing this contract may encounter a disagreement over the conditions or terms that are expected for the job being discussed. If this happens, this agreement may be set to require the Contractor and Subcontractor to participate in a formal arbitration where the final decision made by the overseeing Arbitrator is accepted and complied with. To set this option for dispute resolution, select the “Binding Arbitration” checkbox. Be advised, such arbitration will be subject to the laws of the State who holds jurisdiction over this agreement.

(35) Non-Biding Arbitration. If the Contractor and Subcontractor intend to participate in a formal arbitration when encountering a dispute regarding this agreement but do not wish to accept the obligation of complying with the Arbitrator decisions, then the “Non-Binding Arbitration” must be selected. This ability to deny the Arbitrator’s decision can also be dependent upon the jurisdiction ruling this agreement.

(36) Mediation. If the Contractor and the Subcontractor prefer, this agreement can be set to compel these Parties to seek a resolution to disputes through an official Mediator. If so, then the third checkbox statement should be selected. Notice that for this option, an additional choice must be made. If the mediation is unsuccessful, then indicate if the two Parties must resolve their disagreement through either a binding arbitration or through litigation by marking the appropriate checkbox.

XIV. Termination

Select Item 37, Or Item 38, Or Item 39, Or Item 40

(37) No Rights To Terminate. This agreement may be designated to restrict both the Contractor and Subcontractor from terminating this agreement prematurely. For this effect, select the “No Rights To Terminate” to impose this condition on both these parties.

(38) Contractor Ability To Terminate. The second checkbox option in Article XIV should be selected if the Contractor will retain the right to terminate this agreement prematurely while the Subcontractor will be restricted from terminating this agreement willfully. If this is the case, then document the number of business days that the Contractor must give the Subcontractor as notice before terminating this agreement. This option also solidifies that the Subcontractor is entitled to fair payment for the work done plus a percentage of this amount so that the Subcontractor’s interests are protected. The percentage of the payment the Subcontractor has earned that must be added to the payment must be dispensed to the second available space.

(39) Subcontractor Right To Terminate. If only the Subcontractor will have the right to terminate this agreement then the “Subcontractor Only…” statement must be selected. This option will restrict the Contractor from prematurely terminating this contract however the Subcontractor will be obligated to warn the Contractor of the intent to terminate with the number of days’ notice that is established on the blank space preceding to term “Business Day(s) Written Notice”

(40) Both Parties Option To Terminate. Select the final checkbox in this area if “Both Parties” will have the ability and right to cancel or terminate this contract prematurely. The number of business days that the Terminating Party must submit to the Remaining Party as a warning before terminating this agreement must be documented in this option.

XV. Claims

(41) Claim Deadline. Naturally, some claims made by either the Contractor or Subcontractor on the other may not necessarily result in a dispute. For instance, there may be an additional unforeseen expense (i.e. a change order) or a misunderstanding that can be easily cleared up by a violating Party. Written notice should be given to the Violating Party in such a case with the amount that must be submitted to cure the claim or debt with a number of days to effect the desired solution. Record the number of days after the Violating Party receives this claim that defines the longest period of time the Claimant gives the Receiving/Violating Party to correct the issue.

XXXI. Governing Law

(42) State Court Jurisdiction. The State whose statutes and court systems this agreement and its Participants must comply with especially in a dispute that requires litigation must be established. Supply the name of this state to the space in Article XXXI.

XXXIII.Additional Provisions

(43) Agreed Additions Or Restrictions. Only the requirements, conditions, and restrictions that have been documented within this paperwork before either Party signs it will be considered binding on the Signature Party(ies). Therefore, if the Contractor and Subcontractor have mutually agreed to any additional terms, this should be presented. Use the area in Article XXXIII to include all such provisions. More space may be inserted directly to this area for this task or an attachment containing these additional agreements that is physically kept with this document at all times may be composed and cited in this area by name.

XXXIV. Acknowledgment Of Hiring Contractor

(44) Signature Of Hiring Contractor. The Contractor who shall hire the Subcontractor in this agreement must sign his or her name to formally enter it. This signature will obligate the Contractor to the terms above once the execution of this contract is complete.

(45) Date Of Contractor Acknowledgment. After the Contractor has entered this document by signature, he or she must indicate the current date by recording it as requested.

(46) Name And Company Of Signature Party. To clarify the identity of the Signature Party, he or she will need to supply the printed version of his or her name. If the Contractor runs a Company, then the name of this Company must also be documented.

XXXV. Commissioned Subcontractor Acceptance

(47) Subcontractor Binding Signature. This contract will not be considered successfully executed and binding unless both Parties sign it. Thus, the Subcontractor must enter this contract by signing his or her name to the area requesting this acknowledgment of the document’s terms and conditions.

(48) Date Of Binding Signature. The Subcontractor must establish the calendar date that he or she entered this agreement by delivering the calendar date that his or her signature was made.

(49) Printed Name And Company. The name of the Subcontractor as well as the name of the Company (if any) he or she runs or represents in this project must be supplied in print.