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Is Your Business Prepared For A Big Increase In Demand
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Take These Things Into Consideration Before Entering A Subcontractor Agreement

Relying on your workforce to complete major elements of your construction project can be a good idea—however, it can be more cost-effective and better to sometimes outsource certain tasks to subcontractors. These include specialized tasks, such as electrical work, interior designing, or roofing jobs that require niche expertise. 

In some cases, your team might be dealing with extensive tasks from other projects. You can hire subcontractors to do basic tasks, machinery work, and prepare documentation for other time-sensitive labor. Thus, subcontractors assist project managers and general contractors in bridging the gaps in a construction project that may be challenging with an existing task force. 

A subcontractor agreement plays a vital role in ensuring that you receive quality work from vendors within the stipulated timeline. Worker management software like Bridgit makes it easy to develop, share, and manage agreements. 

This article will discuss several key things you’ll need to consider regarding subcontractor agreements. 

Understanding a subcontractor agreement

A subcontractor agreement can be defined as a contract signifying your collaboration or partnership with a professional or agency to perform certain tasks that your in-house team lacks the experience to do. Subcontractors enable project owners and general contractors to bridge labor gaps and facilitate project completion within industry-regulated timelines. 

A good subcontractor agreement with the appropriate details is essential to construction resource management. The agreement document should include every task, the expectations from the subcontractor, important datelines, quality standards, and penalties for violating any terms of the agreement or the delivery of poor quality work. 

Considerations before entering a sub-contractor agreement

A detailed subcontractor agreement benefits all parties, including project owners, general contractors, and subcontractors. Insightful agreements ensure easy resolution of potential disputes. 

Content of a subcontractor agreement

Before signing a contract, both parties should check the agreement’s contents. If the project owner or subcontractor fails to clearly understand any clause mentioned in the contract, seeking legal advice is the best solution.

Check the scope of work, payment terms, and pricing information. These are the primary areas that lead to disputes. Additionally, include the turn-in time for each service request to ensure timely delivery.

The financial health of the subcontractor

Although it may sound absurd, having an idea of your subcontractors’ finances is important. Your subcontractor agreement should include documentation signifying that your hired subcontractors are financially sound and capable of executing the job successfully. 

A subcontractor with poor finances might not be able to procure the proper resources or materials required to complete your tasks, thus creating a domino effect. Before signing an agreement with a subcontractor, check their past performances, safety history, and client testimonials. 

Insurance coverage of the subcontractor

The construction industry can involve dangerous tasks and activities. Subcontractor insurance prevents financial liability for general contractors in case of accidents or mishaps that occur during the agreement phase, whether it’s injury, property damage, or legal complications. Insurance will cover both contractor and subcontractor. 

Consequences for failure to adhere to the agreement term and conditions

Before entering into an experiment, both parties need to be clear on the consequences of a subcontractor being unable to fulfill quality standards mentioned within the agreement or failing to deliver work within the stipulated timeline. 

Responsibility for procuring raw materials

In many cases, the project owner or general contractor might push subcontractors to procure raw construction materials without paying the appropriate price. In another scenario, the subcontractors may demand raw materials from project owners despite previously establishing that material procurement will be done by the subcontractor. 

To avoid such circumstances, your subcontractor agreement should clearly mention which party is responsible for procuring which materials. 

Putting subcontractors in charge of raw material procurement introduces an additional layer of risk, since a third party has more control over this particular aspect of a project. Maintain a good relationship with the subcontractor and understand their capacities before stating the material procurement terms and conditions. 

Termination conditions

Termination conditions should be drafted in a way that benefits the general contractor while maintaining fair conditions for subcontractors. 

Agreements without any termination clause will restrict general contractors or project owners from terminating the services of a subcontractor in case of poor performance. A construction project manager will struggle with deadlines and quality. 

Including a termination clause in the subcontractor agreement enables the project owners to stop or dismiss the subcontractor on the grounds of quality, quantity, or any other malpractices. But you need to ensure that the terms of termination are clear and that the clause is fair enough for subcontractors to go ahead with your project. 

The terms for ending an agreement early

When terminating a contract or ending an agreement early, you need to adhere to certain terms and conditions. The contract needs to specify the terms and conditions concerning how you can prematurely end or terminate a subcontractor and vice-versa. A written notice period and financial penalties are the most common terms for ending a subcontractor agreement. 

Ownership of the resources left by subcontractor after work completion or termination

Once the project is completed or you terminate the subcontractor, the agreement should clearly outline which party will become the owner of any materials, tools, or machinery left behind. It’s recommended to create a clause so that you can retain the ownership of the resources even after termination. 

This ensures a replacement contractor can seamlessly continue the construction process without delay. However, if the previous subcontractor was responsible for paying and procuring the resources, you may need to provide financial compensation to acquire them. 

Conclusion

Subcontractors are an integral part of construction project management. You’ll need to hire them either for managing specialized activities or for less important jobs. Proper subcontractor management ensures that your construction project runs smoothly without any bottlenecks, and both parties benefit from the partnership.

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