Subcontractor agreements: 20 things you should know

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Subcontractor agreements
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While lumberyards and suppliers often primarily sell and deliver building products, sometimes they also build projects for customers and hire subcontractors (“subs”) which will require subcontractor agreements. While not as common these days, some yards (especially in smaller towns) act as a general contractor (“GC”) as well as a supplier. When acting as a GC, subs will no doubt be hired and a comprehensive subcontractor agreement should be signed. In some cases a “master” agreement can be signed with subs that are hired on a regular basis, eliminating the need for signing a new agreement on every job.

Here are the top 20 clauses I look for and recommend including in subcontractor agreements:

  1. Scope of Work: Parties should always make the specifications and responsibilities clear.

2 . Subcontractor Review of Plans and Site Conditions: Sub should acknowledge it has reviewed the plans and site, that it knows of no issues, and that it can perform its work for the contract price.

3. Payment Terms: Clearly state when the sub must submit payment applications, how long the GC has to make payment, and the reasons that the GC may withhold payment. Also include:

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A. Requirements for pay applications or invoices
B. Timing for payment
C. Pay-If-Paid Clause: the sub will not be paid until the Owner pays the GC for the sub’s work
D. Retainage: amount and when released (typically between 5% and 10%, depending on state laws)

4. Change Orders: GC will not be obligated to pay for any extra work unless the GC signs a written Change Order before the extra work begins.

5. Schedule: Sub has agreed to the project schedule and understands when the work must be completed.

6. Delays: Require sub to promptly report any perceived delays or forever waive them. State that failure to promptly report the alleged delay means i) sub accepts situation and ii) they may not make a claim or demand for increased dollars.

7. Termination for Convenience: Subcontractor agreements should state that a GC may terminate or fire the sub for any reason at all, at the GC’s convenience, provided that the GC pays the sub for the labor and materials contributed to the project as of the termination date.

8. Insurance Requirements: Require sub to maintain insurance as specified by the GC’s insurer. GC should verify those requirements with its insurance agent.

9. List of Sub Vendors: Sub should provide GC with a list of all of the sub’s vendors and suppliers. GC should have the right to object to them and have them replaced.

10. Correction of Work/Warranty: State time frame for sub to correct work and complete punch lists. GC can correct work if sub fails to and deduct costs from amounts due to sub.

11. OSHA Compliance/Project Safety/EPA/Lead Paint: Sub is responsible for compliance and will indemnify, defend and hold GC harmless from all issues, citations or fines.

12. Substance-Free Workplace: Consider banning tobacco products, e-cigarettes, and vaping.

13. Citizenship/Authorization to Work: Sub is responsible for all of its employees being legal to work in the USA and will defend and hold GC harmless from all citations or fines.

14. Liquidated Damages: Penalizes sub for failure to perform on time. Usually involves a daily penalty for failure to complete the project within the agreed upon schedule.

15. Leaving Materials and Equipment on Site: If the sub is terminated or leaves the project for any reason, the sub must leave all of its materials, tools, and equipment on the job site so that the GC or a replacement sub may use them.

16. Proprietary Information/Non-Solicitation: Sub agrees not to solicit GC’s customers or use GC’s information for any purpose outside of the project.

17. Flow Down Requirements: Sub is bound by all terms of the agreements between the GC and the owner. Sub should also have written contracts with any of its sub-subcontractors or other vendors that make the sub vendors bound by the terms of GC’s agreement with the sub.

18. Independent Contractor Status: Sub should meet all in- dependent contractor criteria, and consider listing them   in the agreement.

19. Attorneys’ Fees: GC can recover from sub all attorneys’ fee incurred in enforcing the agreement.

20. Dispute Resolution:

A. Initial informal meeting required first
B. Mediation next if no resolution at initial meeting
C. Sub must continue working while the parties try to resolve the dispute Arbitration vs. Litigation: state method of legal action if it is ultimately necessary

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