What is an Associate Contractor Agreement?
An associate contractor agreement is a legally binding contract between a primary contractor and an associate or subcontractor, outlining the terms and conditions of their working relationship . Much like a subcontractor agreement, it can be used to delineate the scope of services provided; however, an associate is often brought on when the primary contractor has determined the scope and is looking to complete the project without injury to their own resources.
Elements of an Associate Contractor Agreement
An associate contractor agreement should provide every essential item of information needed to clarify the roles and duties of both companies. Most contractors are used to the responsibility they assume, but it never hurts to clarify details that may cause problems or misunderstandings later. Just as employees need to know their obligations, associate contractors do as well. That knowledge is key to keeping up morale and the value of a trained contractor. Critical elements of the associate contractor agreement include:
Scope of Work
The primary purpose of the associate contractor agreement is to explain what the associate will do. This will vary greatly from one contractor to another. A specialty subcontractor will have a much more limited scope of work than a general contractor. Include clear descriptions of what the associate will not do, if this helps avoid misunderstandings. For a general contractor, this will include subcontracting of plumbing work, electrical work, HVAC, excavation work, etc.
Payment Terms
The compensation of an associate contractor must be clearly stated in the associate contractor agreement. Clarify which expenses the contractor can expect reimbursement for on the job site, such as travel costs, meals while working out of town and lodging. Most associates ask for and receive per diem rates, such as $40 for food. If the skilled employee needs to be out of Chicago for a period of two or three weeks, accommodation and travel arrangements can add up fast. Specify what the contractor can expect, so he or she can budget for those expenses.
Confidentiality
All employee and contractor agreements will include a confidentiality provision. This protects company intellectual property (the method of doing business) from disclosure to competitors. It gives the company the right to expect that the associate will not provide trade secrets or sensitive information to others, such as sub-contractors or other builders in the area. In addition, the associate contractor agreement will specify that the contractor cannot recruit company employees for a temporary staff augmentation role or for a permanent position. This is standard language in this type of contract.
Dispute Resolution
Most business contracts include a dispute resolution procedure, but many do not specify how those disputes will be handled. A dispute resolution provision in the associate contractor agreement will include how meetings will take place to discuss those disputes, i.e., who will attend. It will usually state that the parties "will meet and confer." It may require a set number of meetings before action can be taken. The dispute resolution provision may require certain managers to meet with the contractor to discuss his or her points of view.
Legal and Compliance Considerations
When drafting or entering into an Associate Contractor Agreement, parties must consider the legal landscape in which such agreements operate. Proper classification of a contractor is not only important to the Internal Revenue Service and Department of Labor, but also for compliance with a myriad of state laws. Parties must assess whether the worker passes the independent contractor test employed by their state or federal agencies. Because most states follow the FLSA and employ the economic realities test for wage and hour purposes, many agencies tasked with overseeing the classification of workers apply it as well. In addition to evolving agency standards, one must also keep in mind specific statutory requirements governing the use of independent contractors including the Labor Management Relations Act and the National Labor Relations Act, both of which offer further insight into the scope of permissible activities for an independent contractor.
The Advantages of Having a Strong Agreement
A solid associate contractor agreement is crucial for several reasons. First and foremost, an agreement clearly delineates the expectations and responsibilities of both parties. Without it, misunderstandings and miscommunications may occur, leading to lost clients and a damaged reputation.
Another essential function of an associate contractor agreement is that it outlines the terms of payment for work performed, including hourly rates, commission structures, and timelines for payment. Being on the same page about payment can help avoid conflicts and late payments, which can harm your business.
An associate contractor agreement also protects the interests of both the firm and the contractor. For example, this document can include provisions for non-solicitation, assignment of work product, and confidentiality . These provisions can decrease the risk of potential problems with former associate contractors or clients.
In addition to protecting the business and the contractor, a well-crafted agreement goes a long way to safeguard the client’s interests as well. Many clients are discerning, and they want to be sure that the work they’re paying for will be done to a certain standard. Having a formal contract in place between the firm and the associate contractor can help you present yourself as a more professional company.
For all these reasons, it’s vital to have a thorough, well-structured document as the basis for your associate contractor relationship. This can save you time and headaches and will ensure that your firm and your contractor are responsible for their roles in the business relationship.
Common Pitfalls to Look Out For
There are some common errors that we see in associate contractor agreements. The most common mistake is not having one at all. Without an agreement, there is no way to set the terms and conditions for retention. Also, there is no assurance of a set percentage of production. This can be solved by having a well-drafted associate contractor agreement.
Another common mistake that we see in associate contractor agreements is a lack of specificity. A poorly drafted agreement usually ends up in litigation because the terms of the agreement are vague. When the terms of the agreement are not specific, there can be multiple interpretations as to meaning. That is the reason why both parties should list very clear terms and conditions in the contract.
Do not try to save money by using a general or boilerplate contract. Associate contractor agreements have a lot of variables, and a boilerplate contract may not be the best option for one or both of the parties. It is best to have a qualified legal professional draft the associate contractor agreement.
The last mistake that we see with associate contractor agreements is not having a buyout clause. Associate contracts are usually set for a one-year period. The agreement document must outline a buyout formula to determine how much is due the associate at the end of the contract term.
Steps to Writing a Successful Agreement
If you are considering engaging an associate services contractor, a written agreement should be drafted to ensure both parties understand their rights and obligations. Here are a few steps to drafting an effective associate services contractor agreement:
1. Determine the best time to approach the contractor for an agreement
The best time to raise the issue of an associate services contractor agreement is early, around the time of contract renewal or during negotiations for a related issue. If your practice chooses to approach a contractor for an associate services contractor agreement at the time of the association, the contractor should have some experience so that he/she fully understands what the implications of the agreement are and how they may be affected by its terms.
2 . Explain the need for the agreement
You may not be able to control the timing of when a contractor agrees to enter into the agreement, but what you can control is the explanation of why it’s important.
Tell the contractor that you want to avoid any confusion or misunderstandings regarding your working relationship, and that a written agreement is the best way to ensure that your expectations of each other will be understood and fulfilled.
3. Determine if your state has any restrictions on the terms of the agreement
The final step in drafting an effective associate services contractor agreement is ensuring that you do not include or omit any clauses that may be prohibited by your state’s laws. This may include restrictions on scope of services, termination protocols and/or payment terms.