Contractor & Subcontractor Agreements

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The practice of subcontracting work is a standard method of completing a variety of projects. One of the first categories that comes to mind is in the construction industry, but there are many situations when a person or company needs to fulfill a contract and hires outside help to finish the job regardless of the size of the contractor's business.

Construction Industry

  • This area of contractor and subcontractor agreements is one that involves multiple subcontractors working on a job site. A contractor whose bid has been selected for a project has the task of delegating several tasks to meet the deadlines mandated by the developer or builder. The agreements between the contractor and plumbers, framers, electricians and other tradesmen specify the terms of payment for services as well as the functions each subcontractor is required to perform. These agreements also include a completion time and all subsequent hiring, material purchasing and lien releases that are the responsibility of the subcontractor.

Independent Contracting

  • The hiring of independent contractors is a common practice in many businesses and industries. Delivery companies, website content providers and entertainment venues often enter into these types of contractor and subcontractor agreements due to irregularities in project schedules and availability of work. Standard agreements in these situations include such aspects as professional responsibility, subcontractor indemnity and income tax issues. There is a certain amount of flexibility within this type of agreement, but time limitations and performance expectations are still important to the contractor to be able to fulfill their obligations.

Duties And Responsibilities of Subcontractor

  • Although the nature of contractor and subcontractor agreements conveys certain liberties to the subcontracted party such as how the work is performed and completed, a general understanding is implied that the subcontractor will conduct their business in a responsible and ethical manner. In most cases, the contractor is not allowed to interfere with the way in which the subcontractor performs their work. However, the contractor is under an obligation to deliver on their promises according to the terms of their agreement with the project provider, and this does allow the contractor a certain amount of authority as to the scheduling and performance of the subcontracted duties.

Tax Issues

  • The contractor and the subcontractor have independent obligations to adhere to income tax requirements for the work performed under these agreements. One of the common tax designations for independent contractors is known as a 1099. This relieves the contractor of any responsibility to report or track the work of the subcontractor in relation to income tax payment obligations. The subcontractor must keep track of their own labor, material costs, license fees, equipment maintenance, and any other expense that is incurred in the performance of their duties, and report these according to the Internal Revenue Code.

Other Agreement Aspects

  • Although many contractor and subcontractor agreements are for a temporary per-project basis, others are renewable on a yearly basis. This allows both parties to be able to rely on a steady flow of work and means of performing work. Typically, these agreements include more liability on the part of the subcontractor in the areas of insurance and warranted services as well as managing the labor force they employ in relation to worker's compensation and workplace safety.

References

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