If you are a trade business owner who engages subcontractors, you need a well-drafted subcontractors agreement in place because everything is fine… until it’s not. One of the biggest risks I see with my trade business owner clients is having people working with them who have no contracts in place. None!! Sometimes we determine that employment agreements need to be drawn up, but often all that is required is a subcontractors agreement – Simple!
A contractor differs from one of your employees, as they are running their own business. Your trade business may turn to subcontractors for extra manpower on a busy week, or an air conditioning specialist may need to bring in an electrician to get the job done. It may be ongoing work for many years or a one-off.
Subcontractors are nothing new, however, all too often written agreements are disregarded for a handshake. While this may be a friendly way to work it is not legally binding and does not provide protection to your trade business, as it does not transfer any risk to the third-party subcontractor.
Here are 5 reasons why you should have a contract in place:
1) To Document the Details
A subcontractor agreement details the specific relationship between parties and makes clear their responsibilities, which holds them accountable. For example, the Subcontractor is responsible for the payment of all taxes, fees, and other charges that apply to it in the performance of the Services. You, as ‘The Principal’ is then not liable to the Contractor in this regard.
2) To Deal with Workplace Health and Safety
Health and safety obligations should be passed onto the subcontractor where permitted at law. By signing the subcontractor agreement, the subcontractor has declared that they will use safe equipment and give their staff (which can be themselves) adequate training. A written agreement would also include a notification obligation clause. This means that if a subcontractor identifies a risk to health and safety, they are contractually required to call ‘tools down’ and notify you. This again is protecting your trade business and passing the responsibility onto the subcontractor to act appropriately.
3) To Document Insurance Obligations
A subcontractor is required to provide all their own insurance for themselves and their personnel. By signing the subtractor agreement, they adopt accountability (instead of the trade business owner) if they do not in fact hold the appropriate insurance to perform the job. Furthermore, if an unhappy client turns to you regarding a problem, for example with an install that was performed by a subcontractor, you want to be able to hold the subcontractor liable. Get them back to fix it up at their cost. Indemnity insurance covers costs involved such as repair or remuneration, if they are responsible for the issue arising.
4) Agreement Regarding Equipment and Tools
A formal agreement will make clear that the subcontractor is responsible for providing all (or most) of the equipment, tools, and other assets required to complete the work. This also includes work vans and travel expenses. While this may be the case in a handshake agreement also, a formal contract proves that both parties agreed to this, if things were to go wrong.
5) Include Dispute Resolution Procedures
This is not something most people want to think about when initiating a business relationship. However, this is the part that can save you from strife and costly litigation if things get ugly. A well-drafted subcontractor agreement can include mandatory mediation and/or arbitration as an alternative to litigation when there is a dispute. This could be the difference that saves your business from severe financial distress and keeps it ticking over nicely.
In business, it helps to be proactive rather than reactive where possible. Have a plan and surround yourself with advisors who can identify risks in your business and help you implement measures to address those risks.
Please thank us in advance for taking the necessary precautions to safeguard your business!
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