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Contractors can file a lien against a property if the client doesn't pay, and the subcontractor has the same right if the contractor refuses to pay the subcontractor.
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According to the California Contractors State License Board, a mechanic's lien is a "hold" against private property to secure a debt-sort of the legal equivalent of a heavy weight on your ankle. If a lawsuit arises later, this could protect you from being held responsible for the subcontractor's mistakes.Īnother important part of the typical contractor-subcontractor agreement concerns mechanic's liens.
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Contracts also typically contain indemnity clauses that require the subcontractor to assume full legal responsibility for any problems that arise from its own actions. It's common for subcontractor agreements to also include a warranty (guarantee) that the subcontractor is licensed and insured, although Barthet recommends checking the subcontractor's paperwork against state databases. as the project gets bigger, it's not just 'I need it done by this date,' it's 'Here are all the milestones that you have to hit,'" says Barthet, whose firm focuses heavily on construction disputes. "And not just when it should be completed, but. If there's a dispute later, having it all in writing helps both parties.Ĭonstruction attorney Alex Barthet of The Barthet Firm in Miami says you should include a detailed schedule in your contract. Make this as specific as you can, with details about the work the subcontractor will do, when they should deliver it, and when and how they will be paid. You have many opportunities to protect yourself when writing the general contractor-subcontractor agreement the contract that spells out the obligations between you and the subcontractor. Writing Airtight Subcontractor Agreements That can get very expensive very quickly, which is why many contractors won't work with unlicensed or uninsured subcontractors.
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A contractor who hires an uninsured or unlicensed subcontractor may be liable for any injuries or lawsuits stemming from the subcontractor's actions. Subcontractor Insurance and Licensing RequirementsĪnother consideration is whether the subcontractor has its own general liability insurance, workers compensation insurance and subcontractor license. This is not common, but it can be pricey, so you may want to talk to an attorney or accountant if you have concerns. If they do, you might owe overtime, benefits, back taxes and more. However, the Internal Revenue Service or a state regulator could consider the subcontractor your employee. Subcontractor Taxesįor income-tax purposes, a subcontractor is an independent contractor just like the contractor, with all the same tax forms. But before hiring one, you must understand the laws on issues like taxation and insurance. Subcontractors are a vital part of the construction industry, which is why builders and general contractors use them routinely. What Should I Know Before Using a Subcontractor? Rather, they will create a contract that defines what work will be done and for how much money. Their business relationship is not defined by employment laws. They may work together closely and the contractor may give the subcontractor directions, but the subcontractor is an independent business that gets paid and taxed just like the contractor, rather than a salaried employee. It's important to understand that a subcontractor is not an employee of the contractor, legally speaking. They interact with the builder rather than the client, and they work for the builder on a contract basis, just like the builder works for the client on a contract basis. Subcontractors, by contrast, work on just their part of the project, which could be anything in construction that requires expertise: electrical work, tile, drywall, concrete, plumbing and more. The main contractor on a project is often a general contractor or a builder that manages the entire project and handles interactions with the client.
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Construction software company eSUB explains some of the distinctions on its website. Subcontractors are generally people with specialized skills. Knowing your rights and a few subcontractor laws can help you avoid expensive problems down the road.Ī subcontractor is a contractor who works for another contractor, rather than directly for the client. But hiring a subcontractor for a construction project comes with considerations related to taxes, insurance and risk of legal trouble. If your construction business is so successful that you need outside help, congratulations.