The ABCs of Subcontractor Agreements

Are you and your business sufficiently protected?

By Peter J. Lamont

October 13, 2010

The importance of an effective contract with your subcontractors cannot be overstated. In the kitchen and bath industry, you utilize the services of subcontractors on a regular basis to assist with numerous tasks, including installation and delivery. An effective contract with your subcontractor can save you and your company a tremendous amount of time, money and frustration. Unfortunately, far too often dealings with subcontractors are handled informally and, as a result, may even end up costing your company your client.

First, understand that when you hire a subcontractor, you are essentially hiring a company or individual who is not employed by you, and over whom you have very little control, to act on your behalf. Thus, it is imperative that you have a written contract with each and every subcontractor you use regardless of how small the services the subcontractor is providing to you.

Next, certain critical elements must be contained in the contract in order to provide your company with maximum protection. The main issues that should be in your subcontractor agreements are licensing, job and payment, timing and defense and indemnification.


LICENSING

Let’s assume that you are going to hire a subcontractor to install kitchen cabinets for your client. You need to make sure that your subcontractor is properly licensed and registered pursuant to state and local laws. The easiest way to do that is to insert a provision into your subcontractor agreement that essentially states that the subcontractor is properly licensed in accordance with all state and local laws and that the subcontractor agrees to defend and indemnify your company for any damages or legal action arising out of licensing issues.

In today’s litigious society it simply is not enough to ask your subcontractor if he’s properly licensed. He must acknowledge that he is in writing in order to protect your company. In the event that he is not properly licensed, a signed contract wherein he states that he is will protect you.


JOB AND PAYMENT

The job you are hiring the subcontractor to perform should be explicitly stated in the contract. For example, you should include the address of the client’s residence and the specific tasks the subcontractor is to perform (for example, “subcontractor is to remove old cabinets, prepare the walls for installation of new cabinets and confirm measurements of the installation area.”) The more specific you are the better.

The same holds true for payment options. The contract should explicitly state when the subcontractor will get paid. For example, “subcontractor will receive payment once all cabinets are installed and the punch list is completed and signed off on by client.” Make certain to include in the contract any prepayments already me to the contractor. If you're payment agreement consists of multiple payments throughout the course of the job you may want to include a payment table in the subcontractor.


TIMING

It is very important that your subcontract set forth all deadlines for the project. Be as explicit as possible. Verify the subcontract contains language stating that the subcontractor understands and acknowledges that time is of the essence. Also include in the subcontract a provision stating that the subcontractor must inform you immediately upon his awareness of any anticipated delay with the project.


DEFENSE AND INDEMNIFICATION

Finally, and most importantly, your subcontract must include a section addressing defense and indemnification of your company by the subcontractor. Essentially, your paragraph should state at the very least, “subcontractor, agrees to defend and indemnify your company against any claims, lawsuits and damages arising out of the subcontractor's negligence or intentional acts.” You should also include language concerning the subcontractors agreement to defend and indemnify you for any misrepresentations, whether made knowingly or unknowingly, including misrepresentations of licensing, corporate status and other relevant issues.

The simple fact is if you do not have a well-thought-out subcontractor agreement, you will eventually get burned. If you choose to use software or a generic form agreement as your subcontract, make certain to review it and conform it, if necessary, to include the provisions addressed in this article. Remember, it is completely appropriate to include an addendum to a form subcontract so long as the form contract states that the addendum is made part of the subcontract. You should also note that while the example in this article involves a subcontractor installation company these recommendations hold true for any subcontractor. Finally, don’t be afraid to tell a subcontractor who refuses to sign your subcontract that you will not be utilizing his services. Your goal is to find a subcontractor who will represent you in a positive light and perform as directed.

—Peter J. Lamont, Esq., is a commercial litigation attorney with offices in Hawthorne, NJ, as well as Massapequa, NY. His practice focuses on the representation of small- to large-size companies in the building and design industry, as well as individual designers and architects. To contact him with questions and suggestions on topics for future articles, please email him at plamont@peterlamontesq.com or call him at (973) 949-3770.