Effective Agreements' Blog

Subcontractor Contracts: 5 Useful Tips

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Subcontractor Agreements can provide difficult challenges, and endless complications if they are not drafted correctly up-front. Please note that some of the potential problems are purely legal, determined by case-law and statutory changes.  All of these tips will be useful to the business person. (Remember, Effective Agreements will review one template, up to an hour's work. Click here to learn more.)

1. Ascertain whether you are dealing with a person or a corporation. If the subcontractor is employed by a corporation, even a one person corporation, be sure of who is the legal signatory. (Companies with whom you have an ongoing agreement to supply various numbers and types of workers on an as-needed basis will require a separate posting.)

2. Even if the subcontractors to be engaged are supplied by a company, list them on an attachment to the agreement. You want personnel whose resumes you have approved working on the project. Any personnel changes need to be approved in advance. That requirement needs to be in the agreement as well.

3. As in Master Services Agreements, be absolutely sure that the Statement of Work (SOW) describes the subcontractor's duties as clearly and succinctly as possible. This is another case where a bad SOW will haunt you.

4. Include very strong language that ensures that whatever the subcontractor does, all intellectual property he/she creates is owned by you (or your client if that is to be the eventual outcome). Note that there are actually limits to this. If you are using a subcontractor to write a business plan, and that person relies on his/her business plan outline that he/she has been using for years, there must be a mechanism so that outline remains the person's IP. No subcontractor will sign an agreement that takes away something they need to continue doing subcontract work for other clients in the future.

5. Language making it clear that the subcontractor is not an employee is critical. This is one of those areas where counsel should be consulted. If the subcontractor can be deemed an employee, he or she can come back and claim medical benefits you provide for your employees, even after the fact. There are also rules the government uses to determine if the subcontractor was, in fact an employee. If the decision is “yes”, you owe employment taxes on the individual; a most unpleasant surprise. This list of requirements is available online and from your attorney. Having a subcontractor agreement that clearly states the person is not an employee is an important consideration on the list, but it is not a panacea.

Subcontractor agreements cover a lot of ground. Doing them properly may prevent painful and expensive surprises.