Your subcontractors — no matter the industry, from construction to event management — are an incredibly important part of the business you complete every day. Often, your clients will judge your business on the quality of work your subcontractors produce. Not only that, if you fail to properly manage your subcontractor agreements, you could end up with poor quality, high prices, or an agreement that just doesn’t benefit your business the way you had hoped. Organizing your subcontractor agreements is a crucial aspect of managing all of your business’s contractual relationships. There are several key reasons why you must keep clear records surrounding your subcontractor agreements.

1. You must have a clearly established payment arrangement.

Some subcontractors will take advantage of an ambiguous payment arrangement to overcharge you, whether that means raising the price of materials or increasing the time spent on a project to gain extra payment for the labor they put forth. Others may simply charge you the going rate for their business or include prices that are much higher than their competitors.

Putting together clear subcontractor agreements, on the other hand, removes that ambiguity. Your agreement should clearly establish the work that will be completed by the subcontractor, the materials they will be expected to supply, and the payment they will receive for their efforts. You may also include bonus payments or overhead in the agreement. You can also establish penalties that the subcontractor will incur if they fail to deliver the work you expected.

2. Your company needs adequate liability protection.

Subcontractors and independent contractors are only human, and they can make mistakes like anyone else. Not only that, you don’t have the chance to individually interview or evaluate every member of your subcontractor’s team the way you can your own. What happens when the subcontractor makes an error? Your agreement with that subcontractor can accomplish several things, legally speaking. It can:

Indicate who bore responsibility for completing a particular piece of work.

This can make it easier to establish who caused an error — and which company bears responsibility for fixing it.

Establish penalties for subcontractors who fail to uphold their end of the contract or agreement.

You hired a subcontractor to take care of a specific task, but they failed to finish it in time for the rest of the project. Your subcontractor agreement might not prevent you from needing to scramble to fix things, but it can establish what the subcontractor will need to do to make it right.

Help establish legal liability for anything that goes very wrong in the project.

If something does go badly wrong, legally speaking, you want to establish that the subcontractor, and not you, is legally liable.

3. Subcontractor agreements can help establish security obligations.

Many businesses work with confidential material or in secure areas on a regular basis. Your subcontractors must adhere to the same security standards and guidelines that you do, and your agreement can help set that out. It may detail:

What certifications or tiers of access must the subcontractor hold in order to work on a specific project?

Both government contracts and strict private customer contracts, for example, may require substantial certifications or secure access tiers of specific employees. Also, they may require certain security clearances from each employee, including subcontractors, who enters the site.

What security regulations must the subcontractor adhere to?

In a medical care setting, for example, subcontractors may have to adhere to HIPAA regulations in addition to normal security. There may also be specific security requirements for some secure work sites or locations.

What are the penalties for failing to adhere to security regulations? Who bears liability if a breach occurs — and what will you do about it?

The subcontractor’s lack of security could reflect negatively on your business. So it’s critical to set out how you will handle potential breaches ahead of time.

When renewal dates approach, you need time to look at your contracts, assess them, and determine whether they meet your current needs. You may need to make changes to those agreements or alter the way you approach specific aspects of the contract. If you have to make those changes at the last minute, you may need to rush a contract approval through. In some cases, that may mean accepting less-than-favorable terms.

Your subcontractors are valuable parts of your business interactions. They help meet the requirements that satisfy your clients and meet their needs. Also, they help establish your reputation with your clients. With clear management of those agreements, you can ensure that your subcontractors create a positive reputation for your business. You can also take action or find a new provider when they don’t. Contact us to learn more about our contract management solutions for better contract records management. Also, you can try out our software with a 7-day free trial.

