Subcontractor Agreement Template For Builders

Engaging trades is part of running a building business, but it can also be where projects get messy. A tiler starts late, a plumber leaves defects behind, or an electrician claims extra payment for work you thought was included.

A good subcontractor agreement helps you set clear rules before anyone steps on site. For builders, that means more than a general services contract. Your agreement needs to deal with site safety, progress payments, defects, variations, delays, licences and insurance in a way that matches how building projects actually run.

This doesn't have to be complicated, but it does need to be tailored. A generic template can be a useful starting point, but building work has risks that a standard service agreement often won't cover properly.

Do Builders Need A Written Subcontractor Agreement?

Yes, you should have a written subcontractor agreement whenever you engage a trade to perform work on a building project. Even if you trust the subcontractor, a written agreement gives both sides a clear reference point if something changes or goes wrong.

On a building site, small misunderstandings can become expensive quickly. You might think the subcontractor is responsible for supplying materials, while they assume you're supplying them. You might expect defects to be fixed within a week, while they say they'll come back when they can. Without written terms, it can be hard to prove what was agreed.

A builder subcontractor contract in Australia usually covers:

• the scope of works, including plans, specifications and exclusions
• start dates, completion dates, site access rules and induction requirements
• payment claims, invoices, retention and set-off rights
• variations and who can approve them
• defects, rectification timeframes and back-charges
• WHS obligations and site rules
• licences, registrations and trade qualifications
• insurance requirements
• termination rights if work is delayed, unsafe or defective

You should also think about how your subcontractor agreement fits with your head contract with the property owner or developer. If your head contract requires work to meet a certain standard, finish by a certain date or comply with specific site rules, your subcontract should flow those obligations down to the trade doing the work.

That flow-down point is often where templates fall short. A document might say the subcontractor must provide services with reasonable care, but it may not require them to follow the drawings, National Construction Code requirements, engineer's details, manufacturer installation guides, principal's site rules or your project program.

Can I Use A Free Building Subcontractor Contract Template?

Yes, you can use a free template as a starting point, but you shouldn't treat it as a finished contract for your building business. Construction subcontracting has project-specific risks, and a generic template may miss the clauses that protect you when payment, defects or delays become disputed.

A free trades subcontractor agreement might be fine for a very small, low-risk job where the scope is simple and you already know the subcontractor well. For example, asking a painter to complete a one-day touch-up job is different from engaging a carpenter for six weeks of framing and fit-out work across multiple stages.

The bigger the project, the more the agreement needs to be tailored. You should check whether the template deals with:

• progress claims and payment schedules under the security of payment laws in your state or territory
• defect rectification before and after practical completion
• liquidated damages or delay costs, if you intend to claim them
• retention, if you intend to hold money back
• insurance certificates and licence checks before site access
• your right to engage others to fix defective or delayed work and recover the cost
• intellectual property in drawings, shop drawings, designs or reports
• confidentiality and access to client information

You also need to be careful with standard form contracts. The unfair contract terms regime under the Australian Consumer Law can apply to standard form small business contracts, including many trade and construction arrangements. Since November 2023, businesses can face penalties for using or relying on unfair terms, not just having those terms declared void.

That doesn't mean you can't protect your business. It means terms should be fair, balanced and genuinely connected to your legitimate business interests. For example, a clear right to withhold payment for properly documented defective work is different from a broad term allowing you to withhold any amount for any reason.

What Should A Construction Subcontractor Agreement Include?

A construction subcontractor agreement should include the practical details of the job and the legal rules for what happens if things don't go to plan. The best agreements are clear enough for your site supervisor to use, not just your lawyer.

Here is a fill-in outline you can use when thinking through your contract. This isn't a finished legal document, and a lawyer should tailor it before you use it with subcontractors.

1. Parties: Write the legal names, ABNs, ACNs if relevant, addresses and contact details for your building business and the subcontractor.
2. Project Details: Identify the project address, client, head contract reference and any relevant permit or approval details.
3. Scope Of Works: Describe exactly what the subcontractor must do, including drawings, specifications, inclusions, exclusions and materials.
4. Program And Milestones: Set the start date, key dates, completion deadline and any dependencies, such as access or preceding trades.
5. Price And Payment: State whether the price is fixed, schedule of rates or cost plus, and set out invoice timing, GST and payment conditions.
6. Variations: Explain who can approve variations, what form approval must take and how the price or time impact will be calculated.
7. Defects And Rectification: Set timeframes for fixing defects, your inspection rights and what happens if the subcontractor doesn't return.
8. Delays: Set notice requirements, extensions of time and any consequences for delay caused by the subcontractor.
9. Site Safety: Require WHS compliance, white cards, SWMS where needed, PPE, incident reporting and compliance with site directions.
10. Licences And Compliance: Require current trade licences, registrations, permits and compliance with building laws and the National Construction Code.
11. Insurance: List required policies, minimum cover levels and when certificates of currency must be provided.
12. Termination: Set out when you can suspend or terminate, including serious safety breaches, repeated delay, abandonment or defective work.
13. Dispute Process: Include a practical escalation process so issues can be dealt with quickly before they derail the project.

You can also add project-specific schedules. For example, one schedule might list approved plans and specifications, while another sets out rates for common variation items.

How Should Builders Deal With Payment Terms?

You should deal with payment terms clearly, because payment disputes are one of the fastest ways for a subcontractor relationship to break down. Your agreement should say when the subcontractor can claim payment, what evidence they need to provide and when you can withhold or reduce payment.

For building projects, payment terms often work best when they match the progress of the work. You might pay on completion of defined stages, against approved progress claims, or by reference to measured quantities.

Your payment clause should cover:

• the contract price and whether GST is included or added
• when invoices can be submitted
• what documents must come with each claim, such as photos, dockets, timesheets or compliance certificates
• whether retention applies and how it will be released
• whether you can set off amounts for defects, incomplete work, damage or back-charges
• what happens if the head contractor or owner hasn't paid you yet
• the process for disputed invoices

You also need to keep state and territory security of payment laws in mind. These laws give contractors and subcontractors statutory rights to claim progress payments for construction work. The legislation varies across Australia, so a clause that works in NSW may not work the same way in Queensland, Victoria, WA or another jurisdiction.

For example, if a subcontractor makes a payment claim under the relevant security of payment legislation, strict rules may apply to how and when you respond with a payment schedule. Missing that process can put you in a difficult position, even if you genuinely dispute the amount claimed.

A Payment Example

Say Jess runs a building company in Geelong and engages a plastering subcontractor for $48,000 plus GST. The subcontract says the subcontractor can invoice 40% after rough-in walls are sheeted, 40% after stopping, and 20% after defects are rectified.

The subcontractor invoices $19,200 plus GST after sheeting, but Jess's supervisor records that two rooms are incomplete. Because the agreement requires progress photos and supervisor sign-off, Jess can issue a written response approving $15,000 plus GST and explaining the balance will be assessed once the incomplete rooms are finished.

That clear process doesn't guarantee there'll never be a dispute, but it gives Jess a much stronger position than a vague promise to pay when the work is done.

What If A Subcontractor Causes Delays Or Defects?

If a subcontractor causes delays or defects, your first step is to document the issue and give a clear written direction to fix it. Don't rely on a rushed phone call from site if the issue could affect payment, handover or your relationship with the client.

A practical process looks like this:

1. Record The Issue: Take photos, keep site diary notes and save any messages, emails or inspection reports.
2. Check The Contract: Look at the scope, drawings, program, defect clause, variation process and any notice requirements.
3. Notify The Subcontractor: Send a written notice describing the defect or delay, the clause you're relying on and what needs to happen next.
4. Set A Realistic Deadline: Give a rectification timeframe that fits the urgency. For example, 24 hours for an immediate safety issue, or 5 business days for non-urgent defective finishes.
5. Preserve Your Position: If you may back-charge, set off payment or engage another trade, say so in writing before you incur the cost.
6. Escalate If Needed: If the subcontractor doesn't respond, get advice before terminating or withholding a large payment.

Your contract should make defect rectification practical. For example, it can require the subcontractor to attend site within a set timeframe after receiving a defect notice, bring the right materials and coordinate with your site supervisor.

If the subcontractor doesn't fix the issue, your agreement can give you the right to have another trade complete the rectification and deduct the reasonable cost from amounts otherwise payable. This needs to be drafted carefully, especially if you're using a standard form contract with small subcontractors.

Delay clauses should also be specific. If you want the subcontractor to notify you within 2 business days of becoming aware of a delay, say that. If your project program changes because another trade was late, the subcontract should explain whether the subcontractor gets an extension of time and how that's approved.

What Insurance And Safety Clauses Should Builders Include?

You should include insurance and safety clauses that match the risks of the trade and the project. A subcontractor working on structural steel, electrical work or waterproofing may expose your business to very different risks than a subcontractor doing a small landscaping package.

At a minimum, your agreement should require the subcontractor to provide certificates of currency before starting work and to keep cover current for the whole time they're on site. Common policies include:

• Public Liability Insurance: Covers injury or property damage claims caused by the subcontractor's work.
• Workers Compensation Insurance: Required where the subcontractor employs workers, with rules varying by state and territory.
• Professional Indemnity Insurance: Relevant if the subcontractor provides design, engineering, subconsultant, certification, advice or specifications.
• Motor Vehicle Or Plant Insurance: Relevant where vehicles, machinery or equipment will be used on site.
• Contract Works Or Construction Insurance: Often arranged by the builder or principal, but your subcontract should say what is and isn't covered.

Insurance is only one part of risk management. Your subcontractor also needs to follow workplace health and safety laws. Across Australia, WHS duties are regulated under state and territory legislation and enforced by regulators such as SafeWork NSW, WorkSafe Victoria, WorkSafe Queensland and their equivalents.

Your site safety clause should require:

• current white cards for workers who need them
• safe work method statements for high-risk construction work
• compliance with your site induction, PPE and exclusion zone rules
• prompt reporting of incidents, near misses and hazards
• cooperation with other trades and your site supervisor
• immediate correction of unsafe work practices

Licensing is just as important. Depending on the state, trade and type of work, subcontractors may need a builder, plumbing, electrical, gasfitting, waterproofing, demolition or other licence or registration. Your agreement should require them to hold all licences needed for their work and notify you immediately if anything changes.

Are Subcontractors Different From Employees?

Yes, subcontractors are different from employees, but simply calling someone a subcontractor doesn't make it true. The real working relationship matters, and getting this wrong can create Fair Work, superannuation, payroll and workers compensation issues.

For employers, the Fair Work Act 2009 is a key law to keep in mind. Recent changes have put more focus on the real substance, practical reality and totality of the relationship when working out whether someone is an employee or an independent contractor for Fair Work purposes.

A genuine subcontractor will usually:

• run their own business with an ABN
• control how the work is performed, subject to site rules and project requirements
• use their own tools, equipment or workers where appropriate
• carry their own insurance
• quote for work and bear some commercial risk
• work for other clients, not just your business

An employee relationship may be more likely if you control their hours every day, provide all tools, integrate them into your team like staff, stop them working for others and pay them mainly for their time rather than a defined result.

For example, if you engage Liam as a sole trader carpenter for a fixed $12,000 framing package, he supplies tools, invoices on completion milestones and also works for other builders, that looks more like subcontracting. If Liam works only for you 7:00am to 3:30pm every weekday, wears your uniform, uses your tools and is paid hourly with no real business risk, the label may not match the reality.

Your subcontractor agreement can support the right classification, but it can't fix a relationship that operates like employment in practice. If you're unsure, get tailored advice before you engage the worker, not after a dispute arises.

Key Takeaways

• A building subcontractor agreement should be tailored to construction work, not copied from a general services template.
• Your contract should clearly cover scope, payment claims, variations, defects, delays, insurance, licences and site safety.
• Security of payment laws, unfair contract terms rules, WHS laws and licensing requirements can all affect how your agreement works.
• Clear defect and delay processes help you act quickly without damaging the whole project.
• Make sure the relationship is genuinely subcontracting, not employment in disguise.
• Templates can help you plan, but a lawyer should tailor the agreement before you use it on site.

If you'd like help with your building subcontractor agreements, defect and delay clauses, payment terms or insurance and safety requirements, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.