Subcontractors. This is a relationship that screams for a contract.
You are asking someone who is not an employee to do work for you. You will be paying them. There are parameters that should be nailed down, agreed to, and put in writing.
A subcontractor contract does not have to be long or terribly wordy. The purpose is to detail the expectations on both sides of the table.
- What will the contractor do for you and your client?
- What will you pay the contractor?
- When will you pay them?
- How and when will they report to you?
- How will the contractor interact with your clients?
In February 2009 a dispute occurred between a company in Shenandoah Iowa and their subcontractor. The dispute was over payment. Why? Because, according to the story in the Nonpareil Online, they had a verbal contract about the hourly rate. The contractor believed they’d agreed to $37.50 per hour for the team. The subcontractor asserted that the agreement was for $37.50 per hour per person. Quite a big difference.
This is a great example of how a written contract works. If the rate had been written into a contract there would have been no dispute. The parties would not be at odds and their dirty laundry would not be out for all to see.
There should also be a clause preventing the subcontractor from taking your client from you or going to work directly for your client.
Consider this example: a businessman enlists the services of a subcontractor to perform IT services at his client’s site. Years go by and the sub has gotten pretty ingrained in the client’s business. They never signed a contract because the businessman never considered that the sub would do anything but what was asked of him.
One day the client calls the businessman to say they are terminating the relationship. At this point the businessman discovers that the sub is now working directly with the client for a reduced fee — but more than the sub was making by working through the businessman.
Such a surprise! Unfortunately, the businessman set himself up for the coup. If he’d had a contract with the subcontractor it would have been difficult for the sub to cut him out of the deal.
Being trusting is a great thing. However, you have an obligation to your business, your clients, and yourself to make sure there are no surprises. In one of my coaching practices I have a partner. We trust each other completely. Guess what? We have a contract. It covers the bases so we can concentrate on the business at hand. We never have to worry about future surprises or misunderstandings.
To grow your business you have to be able to invest your energy on revenue generating activities. Surprises can be costly and damaging. Having a contract at the outset can help you avoid those surprises in the long run.
Editor’s Note: this is part two in a series about situations in which you need contracts in a small business. For part one, read: Death by Contract, or Lack Thereof.
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About the Author: Diane Helbig is a Professional Coach and the president of Seize This Day Coaching. Diane is a Contributing Editor on COSE Mindspring, a resource website for small business owners, as well as a member of the Sales Experts Panel at Top Sales Experts.