Florida Subcontractor Agreement Defined
A subcontractor agreement is a legally-binding document that defines the terms and conditions of a business agreement between the owner and the subcontractor. Within this contract, both parties agree to perform specific duties in order to support a larger project. Most subcontractor agreements include aspects such as payment terms, the scope of work to be performed, billing and subcontracting procedures, schedule deadlines, and safety guidelines.
When engaging the services of subcontractors on a Florida project, it is critical to have a written subcontractor agreement, no matter how small the project . Contractor/subcontractor agreements are sometimes 30-40 pages long, but typically contractors and subcontractors only take the time to do a one page agreement, often called a standard form contract. Standard form contracts are satisfactory as a general rule, but they become problematic when there is a conflict in the contract terms. For example, provisions covering indemnity, lien waivers, and even dispute resolution could be overlooked, then presented for the first and only time after a loss has occurred.
Components of a Florida Subcontractor Agreement
Comprehending the intricacies of a subcontractor agreement in Florida is essential for successfully executing construction projects. The contract details the relationship of each subcontractor with the general contractor and establishes the legal parameters encompassing their working relationship. The following elements should be included in any Florida subcontractor agreement:
Scope of Work: As a contractor, it is essential to clearly spell out the scope of work in detail. This helps avoid most issues arising over agreeing to do first or paying for extras. The less wiggle room there is in an unclear scope, the better off you will be.
Payment Terms: When dealing with many subcontractors – some of them individual 1099 workers who may be fluid and transient employees- establishing payment terms is critical to keeping your books straight. It is vital to make sure that everyone has been paid promptly when they should have been.
Contract Completion Schedule: A detailed timeline helps you keep control of your project and of your subcontractors. It also provides them with the knowledge that everyone understands what is needed and expected on the job and when.
Dispute Resolution: Disputes are costly and lengthy. While these are to be avoided, when they are necessary, it is better to have this outlined in your subcontractor agreement to avoid the cost of trial. While we can’t avoid all the problems on our jobs, we can limit damage to your project and bottom dollar.
Legal Compliance: Subcontractor Agreements in Florida
A valid subcontractor agreement in Florida must be in writing if it is not completed within one year. However, it can be either written or verbal if it is to be completed within one year. The terms of the agreement will be left to the law of contracts in Florida. Certain provisions must be included in the contract for it to be enforceable. This includes a clear description of the work to be completed, deadlines for completion, compensation and payment terms, as well as an outline for amendments to the contract.
The statute of limitations for breaches of subcontractor agreements is four years for verbal agreements and five years for written contracts. Payment bonds extend the statute of limitations to one year. However, there are certain requirements that come along with payment bonds that must be adhered to. Subcontractors are often at the bottom of the chain of parties for action on bonds and are less likely to be able to succeed in a breach of contract claim.
Breach of partnership terms or a properly executed subcontractor agreement may require mediation, arbitration or litigation to remedy the situation. Many general contractors have preferred arbitration clauses written into their subcontractor agreements to favor more manageable arbitration proceedings. Should arbitration not be favored by one or both parties, litigation may be necessary.
Construction and building projects are expensive and the impact that subcontractors have is significant. Subcontractors must understand their rights in order to provide their expertise and services in the most responsible manner.
Frequent Point of Confusion and How to Avoid it
One of the most frequent problems that the parties to a subcontractor agreement face is that of scope of work. All too often, the contractor and subcontractor disagree as to which work is to be performed under the subcontractor agreement. This can lead to conflict, delays, and extra costs that can destroy a project’s budget. A recent case from Naples underscores this issue: the party who refuses to accept their contractual obligations and perform their end of the bargain will lose.
In TRG Management Group, LLC v. Tropical Development of SW Florida, Inc., TRG Management Group, LLC (TRG) was a commercial developer and Tropical Development of SW Florida, Inc. (Tropical) was a subcontractor of TRG on multiple projects. For one of the projects, Tropical executed a subcontractor agreement with TRG. The agreement included a scope of work for the subcontract. However, Tropical tried to enter into a discovery dispute with TRG regarding its refusal to pay certain amounts owed on the project. TRG countered that the goods Tropical was seeking payment on were not part of that particular subcontractor agreement because it pertained to a different project. Tropical responded by alleging that the third project was actually a Change Order under its subcontract and that payments for those goods were due under that prior subcontractor agreement. However, Tropical’s argument fared poorly with the Trial Court and was subsequently upheld by the Second District Court of Appeal.
The Second District Court of Appeal noted that Tropical did sign a separate subcontractor agreement for the third project before any work on that job commenced and "could have bargained for inclusion of this work in that subcontract." The two subcontracts unrelated to each other, both in work and price. It further noted the argument of TRG that Tropical improperly tried to seek additional payments on nonpayment issues "involving entirely unrelated projects." The Court thereby rejected both the Trial Court and Tropical’s arguments.
Scope of Work is paramount to having a good subcontractor agreement. While all good subcontracts will indicate a specific scope of work for the subcontractor and the project, this will not always solve the problem. You still may have situations like Tropical where the subcontractor tries to create ambiguity in the language of the subcontractor agreement to get additional monies. Fortunately, the Discovery dispute process has remedies that are available to help you clean up the contract language and recover money you are owed.
Is it Critical to Your Agreement? Licensing and Insurance
Licensing is required for most contractors in the state of Florida. In the majority of cases, it is short sighted to contract with an unlicensed individual. Licenses represent a knowledge of the necessary skills; many substandard workers would be eliminated if licenses were required at all levels. In addition, if a subcontractor is not properly licensed then there could be a compromise in your company’s insurance coverage. For example, a substandard contractor may be too small to be able to get general liability and the result of that is an extreme risk that your company will be uninsured if that subcontractor fails to complete his or her work.
Examples of common licensing requirements include:
General Contractors
-Florida Dept. Regulation & Licensure issues the local licenses .
-Only licensed General Contractors may enter in to contracts for general contracting services.
– If a General Contractor wishes to subcontract some of the work or hire sub-contractors he must pay a one time application fee ($300).
Licensing fees will increase commensurate with experience, for example:
-.031 Vs. .001—-$800 Vs.$200
-.052-.071—-$275 Vs. $100
Electrical and Alarm Contractors
-Florida Dept. Regulation & Licensure issues local license.
-A person cannot engage in electric work without a local license.
Requirements to obtain a license:
-Create a corporation with the Florida Department of State (Fictitious Name Registration).
-Required to have a general liability policy (not less than $500,000 aggregate).
Site Contractors
Florida Dept. Reg. & Licensure issues local licenses.
A person cannot engage in limited contractor activities without a local license.
Creating a Strong and Comprehensive Agreement
When drafting a subcontractor’s agreement, you would be well served by consulting an Attorney prior to the execution of the Agreement. As stated previously, you should hire an attorney to prepare a subcontractor agreement for you, however you can increase your level of sophistication if you understand what exactly you are reading or shaping into your agreement.
It is important that all aspects of the work be taped. In this regard, if applicable, the subcontractor agreement should specifically address the following:
- The type of work that needs to be performed. If the owner requires pipes to be clean before pouring cement, it is important to address this as a condition precedent in the Agreement.
- The schedule in which the work must be performed. If you are facing scheduling issues, the agreement may provide that the subcontractor does not get paid until the work is completed. This can be another tool in your arsenal to ensure that the subs are timely completing work. You should consider withholding payment until the work is complete if there are any issues with scheduling and bargaining power.
- The provisions requiring the subcontractor to comply with all rules and regulations that the contractor must follow under the owner contract. The subcontractor should be aware that they will be bound by these restrictions. More importantly, however, if the subcontractor fails to follow the rules and regulations and the owner is harmed, the subcontractor should be required to indemnify the contractor.
- Payment Schedule. The subcontractor agreement should provide when the subcontractor will be paid.
- Conditions Precedent. Any conditions that must be satisfied before payment should be listed. Examples of conditions precedent include the subcontractor’s obligation to obtain worker’s compensation insurance and general liability insurance, the subcontractor’s obligation to maintain a lien free job site, security regarding timely completion of the project and the subcontractor’s approval of plans and specifications before the project starts.
- Right to Inspect. It is important that the contractor reserves the right to have their inspection team examine all materials used at the job site. Further, the contractor should reserve the right to have a representative witness the installation.
- Approvals and Permits. It is important that all approvals and permits be obtained prior to the work commencing. Although the subcontractor is likely responsible for all permits, it may not hurt that these obligations also rest on the contractor as well. These obligations should run both ways.
When and How to Update Your Agreement
Now that you understand the different types of agreements you have with subcontractors and now that you know what needs to be in those agreements, it is very important that you keep on top of your subcontractor contracts and that you regularly review and update your subcontractor agreements. Just as you regularly review and update contracts you have with your clients (i.e., your primary contract), for the same reasons, you need to make sure that your subcontractor agreements are updated and reviewed regularly. The business world changes every day and there is a good chance that what works today , will not work as well last year, as it may work next year, as it may work in the future. Therefore, if your agreement is not reviewed regularly and updated, you may be left holding the bag. Additionally, with the economy, business models, companies, and many other aspects of doing business changing on a day-to-day basis, laws, and regulations, the agreements you created 5 years ago, 10 years ago, or even last year are likely to be outdated. In short, do you want to risk your business and your hard work on a contract that is most likely not up to date?