Understanding a Subcontracting Agreement Template
Many businesses seek to grow and build the reach in the market but do not often have the infrastructure to facilitate this growth. This is where the unique benefits of subcontracting can bring new life into your business. However, you must be mindful of the contractual requirements that will make subcontracting work for your business. In the same light, subcontracting for a business can bring your little enterprise with the much-needed constant flow of business to grow your enterprise beyond your current business abilities.
Subcontracting has been a vital part of the business world, and very often this relationship is one of handshakes and verbal agreements. But often this unformalized type of business relationship could spell trouble for both vendor and contracting business. With the proper contracts and documentation like a subcontractor agreement, your business can only flourish as your subcontractors deliver top quality work for your collective clients.
Business-in-a-Box provides entrepreneurs and business professionals with more than 2,000 business templates including many consultants and contractors templates. These documents cover every aspect of your business and will make your outsourcing of resources a more formalized arrangement, protecting both parties in the event of any disputes.
Why Use Subcontracting Agreements in your Business
In many industries, the use of subcontractors has been commonplace for some time and although the relationship between vendor and business is one of trust and reliability very seldom includes a subcontract agreement template. The risk transfer stipulations that are employed in this arrangement need to be documented so that the organizations involved have clear lines of responsibility and liability. The use of subcontractors is extremely popular in industries like construction and maintenance where the small business delivers a vital part of the services to the larger corporates and industries. The most important reason for your business to be using subcontracting agreements is to clearly stipulate where the responsibility lies when there is work to be done, coupled with the standardization of quality across the many vendors.
Your business has a reputation that is carried by the subcontractor to the client and this reputation must be expertly communicated to the subcontractor so that they will become more than just a vendor but an extension of your business. By using a legally binding agreement you are not only securing the levels of quality that your client ultimately receives, but you are ensuring that you have only the best subcontractors in the industry to service your clients.
How Will the Subcontractor Agreement Work for Your Company?
The core function of a subcontractor agreement is to outline the division of responsibility when it comes to the work included in the agreement. That means that the main business that is hiring the contractor transfers certain responsibilities to the subcontractor (vendor) and they also agree on certain variables regarding the costing and administration of the payments for work completed. For your business, using a subcontracting agreement template will allow you to clarify whether your vendors have the required skill to fulfill the work required, and just as important you establish if your subcontractors have the necessary insurance that will protect you and your client. Having your subcontractor confirm their liability and indemnity in terms of the contractual work, your business will be protected from certain legal and administrative concerns.
The normal administration of running a business could become complex if you do not have signed subcontracting agreements with your vendors, especially in adverse situations. To minimize the impact of using subcontractors in your business, you must employ an editable legal subcontracting agreement template to streamline the process.
The Content of a Subcontract Agreement
The subcontracting agreement template although a powerful instrument in business is rather a simple piece of documentation. A subcontracting template will already have everything laid out for you, so all you will need to do is fill in the blacks. This type of agreement includes the following key sections:
- Feeder Business Details - The full details of the business that is providing the work to the contractor. This will include the full registered name and physical address of your business including the authorized company officer that will be managing the business relationship.
- Subcontractor Business Details - The full registered details including name and physical address of the subcontracting business (vendor) also including the name and contact details of the responsible person for the business relationship. Often this will be the business owner.
- Contract Work Details - Regardless of the industry, the work that is going to be delivered by the subcontractor on behalf of the feeder business must be detailed so that both parties will have no confusion about what work needs to be delivered by each party. Within the template there is ample space to fully elaborate on the scope of the work, this will eliminate almost 100% of work disputes going forward.
- Contract Work Costing Structure - In the tough economic conditions currently, it is vital that the costing of the work be detailed so that when prices differ, or market increases occur both parties have a foundation to work from to establish new pricing guidelines. By stipulating the cost breakdown, both business and subcontractors can plan for work and payments with clear financial figures to work from.
- Work Terms and Conditions - As an extension of the scope of work section, the terms and conditions of the work in question and the terms of the agreement itself must be clear to both sides of the equation. This section will help you detail the quality standards and delivery times if needed for the work you are contracting out. You will also be able to add in penalty conditions and payment terms for completed work. Depending on the industry of subcontracting, you might also want to incorporate the relevant jurisdiction of regulatory bodies or associations so that you can ensure that the subcontractors are duly approved providers of the services your business requires.
- Agreement Terms and Conditions - As with any legal document there must be a standard set of terms and conditions that govern the agreement and the interaction between parties in the event of a dispute. This is a section where you could add arbitration and jurisdiction details.
- Amendments - If the work in question requires the addition of amendments, you can add them into the agreement here. This will also serve both parties to add future amendments to the current agreement.
- Signature Page - The representatives of both parties will sign and authorize the agreement with witnesses and document the date of commencement.
The simple nature of this template makes it easy to use for any industry but does not limit the power that this agreement could bring to your subcontracting division. This easy-to-use template will revolutionize your subcontracting workforce and will make your business a far more effective service provider in your respective industry.
The Benefits of using Subcontractor in Your Business
If you have not recognized the benefits for your business to have vendors with the use of detailed subcontractor agreement templates, it might be crucial for you to study the following:
Using subcontractors in your business could realize the following benefits for your Business:
- Ability to deal with Large Projects - The cost of expanding your infrastructure to accommodate large projects might be prohibitive to your current business. By using subcontractors, you enable your business to be awarded larger projects that you could have previously accommodate. This will open more opportunities in your industry for your business that could lead to further growth and increased profits.
- Cost and Risk Management - The subcontractors will take on some of the risks and cost of completing the work in question and will therefore create a legal separation that will free up internal resources of your business to deal with more important aspects of your business. Using subcontractors will most definitely lower your cost of ownership and minimize your risk associated with the scope of work. This will keep your business lean and able to deal with any unforeseen economic or industry situation that might occur.
- Wider Access to Expertise - As with any industry the subcontractor vendor base has a wider base of expertise that makes the use of these industry experts a benefit for your business. When presented with a unique problem in the field they have the experience to solve the issue on the spot and you will receive the ultimate praise as the end-user client will see the problem being solved by your organization. The expertise can then also be disseminated to the rest of the contractor base to improve the ultimate service delivery for your client base.
- Productivity Improvement - Subcontractors work to get paid. If the job is not completed, then the payment will not happen. This simple aspect of the contractor’s business model will improve the productivity that you are able to count on. Their work must be up to standard and the work must be complete in order to receive payment so you can expect higher rates of productivity from your subcontractor base.
- Contract Term Management - You can manage the term of the contract that each subcontractor has and so you will be able to terminate the contracts of any subcontractor that does not maintain the quality standard as set out in the agreement. This gives you ultimate control of the workforce and the quality of work done for your clients.
- Legal Separation - This is a very important aspect that often gets overlooked by businesses. Using a subcontractor agreement gives you the legal separation in the event of disputes and accidental damages that might occur on-site. It also indemnifies your business from the legal interaction between a subcontractor and their workforce so that you can rely on the work being done without having to deal with the complication of dealing with the workforce.
- Multiple Bids on Work - With subcontractor agreement templates, you have a base of service providers that you could mobilize to get the best pricing on larger projects. When you have a large project to complete, you could utilize the subcontractor base to get multiple bids on the project so offer your client the best project cost and maximize your profitability.
- Supply Chain Management - Your subcontractor base will use their own supply chains and will also have redundancy within this network. That means that you will not have uncompleted work as your subcontractors will manage their own supply chains to ensure that the work is completed on time and up to standard. This will again free up your internal resources to deal with more core business issues rather than dealing with supply chains and delivery issues.
If you are considering the use of subcontractors in your business model, the above details have given you the scope of benefits available to you by using subcontractors in your business. However, you must by now recognize the importance of having subcontractor agreements in place with each vendor. This will expand your business ability to deliver services and will maintain infrastructure and administration costs that will improve your profitability across the board. Sign up to Business-in-a-Box and get full access to over 2,000 business and legal documents that will kickstart your business.